RIMS Risk Financing & Transfer Strategies 1

Question 1

Which risk financing strategy involves an organization retaining financial responsibility for losses rather than transferring them to an insurer?

Accepted Answer

Risk retention

Answer

Risk retention means the organization absorbs losses internally, either deliberately (active retention) or by default (passive retention).

Question 2

A captive insurance company is best described as:

Accepted Answer

A licensed insurer wholly owned by the insured to fund its own risks

Answer

A captive is a licensed insurance subsidiary created and controlled by its parent organization to finance the parent's own risks.

Question 3

Under a retrospective rating plan, the final insurance premium is determined by:

Accepted Answer

The insured's actual loss experience during the policy period

Answer

Retrospective rating adjusts the premium after the policy period ends based on the insured's own actual losses, subject to minimum and maximum premium caps.

Question 4

Which of the following is the PRIMARY advantage of a large deductible program over a guaranteed-cost insurance policy?

Accepted Answer

Allows the insured to retain investment income on funds held for losses

Answer

Under a large deductible program the insured retains funds until losses are paid, earning investment income on those reserves that would otherwise go to the insurer.

Question 5

A risk retention group (RRG) under the federal Liability Risk Retention Act of 1986 must be:

Accepted Answer

Composed of members engaged in similar or related business activities

Answer

RRGs must be owned and controlled by their members, who must be engaged in similar or related businesses, allowing them to pool liability exposures.

(RIMS) Risk and Insurance Management Society Certification Practice Test

(RIMS) Risk and Insurance Management Society Certification Practice Test

RIMS Risk Financing & Transfer Strategies 1