Chapter 4

Question 1

_____ ________ is considered the primary advantage of using retention as a risk financing technique

Answer 1

cost savings

Question 2

a ______ ________ can reduce an organization’s cost of risk over time, but has significant start-up costs relative to the other measures

Answer 2

captive plan

Question 3

It is typically more economical for an organization to retain rather than transfer loss exposures directly related to its core operations.

Answer 3

true

Question 4

Current expensing of losses as a planned retention funding measure would be most appropriate for funding

Answer 4

auto physical damage deductible

Question 5

_________ __________ of losses as a planned retention funding measure is appropriate for funding losses with a low expected value, but becomes less advisable as the expected value of losses gets larger.

Answer 5

Current expensing

Question 6

A _______ collects premium, issues policies, purchases reinsurance, invests assets and pays losses, just like any other insurer.

Answer 6

captive

Question 7

_______ _______ _________ ________ is an advantage of risk transfer that appears to be valued by investors

Answer 7

Reducing cash flow variability

Question 8

Retention enables an organization to manage its

Answer 8

cost of risk

Question 9

catasrophe bonds are used to

Answer 9

Securitize insurance risk through a marketable security.