RIMS Risk Financing & Transfer Strategies 3

Question 1

The 'total cost of risk' (TCOR) metric includes all of the following components EXCEPT:

Accepted Answer

Revenue earned from the organization's core business operations

Answer

Insurance premiums paid

Answer

Retained losses and uninsured losses

Answer

Risk management department operating expenses

Question 2

Aggregate stop-loss coverage is designed to protect an organization against:

Accepted Answer

Total losses across all occurrences exceeding a specified annual aggregate threshold

Answer

A single catastrophic loss that exceeds the per-occurrence retention

Answer

Losses arising from a specific named peril such as flood or earthquake

Answer

Losses that occur outside the policy territory endorsement

Question 3

In the context of risk financing, a 'paid-loss' retrospective program differs from an 'incurred-loss' retrospective program in that:

Accepted Answer

Premium adjustments under a paid-loss program are based on losses actually paid rather than reserves plus payments

Answer

Paid-loss programs use industry-wide loss data rather than individual company data

Answer

Paid-loss programs eliminate the need for excess insurance above the retro maximum

Answer

Paid-loss programs are only available for workers' compensation coverage

Question 4

Which alternative risk transfer (ART) mechanism allows a group of unrelated companies to pool similar risks into a single underwriting vehicle without forming a licensed insurer?

Accepted Answer

Group captive

Answer

Single-parent captive

Answer

Risk retention group (RRG)

Answer

Rent-a-captive

Question 5

A rent-a-captive arrangement is BEST suited for an organization that:

Accepted Answer

Wants captive benefits such as underwriting profit access without the capital commitment of ownership

Answer

Has sufficient premium volume and capital to justify forming its own captive

Answer

Requires admitted coverage in all 50 states and U.S. territories

Answer

Has catastrophic exposures that exceed standard reinsurance treaty capacity

Question 6

Which of the following BEST describes a multi-year, multi-line (MYML) insurance program in risk financing?

Accepted Answer

An integrated policy covering multiple lines of coverage over multiple years within a single aggregate limit

Answer

A guaranteed-cost policy with a three-year rate lock and no loss adjustment

Answer

A program that layers primary and excess coverage across three separate policy periods

Answer

A reinsurance treaty that renews automatically for five years without renegotiation

Question 7

When evaluating the feasibility of a captive insurance program, which financial metric is MOST important for determining whether the captive will be economically viable?

Accepted Answer

The anticipated spread between premiums charged and expected losses plus expenses

Answer

The parent company's credit rating from a recognized rating agency

Answer

The number of claims the captive is projected to handle annually

Answer

The captive manager's fee schedule relative to industry benchmarks