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

TCOR aggregates premiums, retained losses, administrative costs, and indirect costs of losses — it does not include operating revenues unrelated to risk management.

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

Aggregate stop-loss limits the insured's total annual retained losses by capping cumulative loss exposure once it surpasses the agreed aggregate deductible.

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

In a paid-loss retro, premium adjustments track cash payments made on claims, so the insured retains investment income on reserves until funds are actually disbursed.

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

A group (or association) captive allows multiple unrelated companies with similar risk profiles to share ownership of a captive insurer and pool their losses.

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

A rent-a-captive lets an insured access a pre-established captive structure, receiving underwriting profit and investment income participation without forming or capitalizing its own entity.

(RIMS) Risk and Insurance Management Society Certification Practice Test

(RIMS) Risk and Insurance Management Society Certification Practice Test

RIMS Risk Financing & Transfer Strategies 3