Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

FI 341 > FI 341 Exam 1 > Flashcards

FI 341 Exam 1 Flashcards

1
Q

Risk

A

Uncertainty concerning the occurrence of a loss

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Objective Risk

A

Relative variation of actual loss from expected loss

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Subjective Risk

A

Uncertainty based on a person’s mental condition or state of mind

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Chance of Loss

A

The probability that an event will occur

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Objective Probability

A

Long-run relative frequency of an event assuming an infinite number of observations and no change in the underlying conditions (can be determined by deductive or inductive reasoning)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Subjective Probability

A

Personal estimate of the chance of loss (personal perception may differ from the objective probability)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Peril

A

Cause of the loss (fire, windstorm, etc.)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Hazard

A

A condition that increases chance of loss

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Physical Hazard

A

Physical conditions that increase the chance of loss (icy roads, defective wiring, etc.)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Moral Hazard

A

Dishonesty or character defects that increase the chance of loss (faking accidents, inflating claim amounts, etc.)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Morale Hazard

A

Carelessness or indifference to a loss because of the existence of insurance (leaving keys in an unlocked car)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Legal Hazard

A

Characteristics of the legal system or regulatory environment that increase the chance of loss (large damage awards in liability lawsuits)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Pure Risk

A

Only the possibility of loss or no loss (earthquake)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Speculative Risk

A

Profit, loss, or no loss are all possible (gambling)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Fundamental Risk

A

Affects the entire economy or large numbers of persons or groups (hurricane)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Particular Risk

A

Affects only the individual (car theft)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Enterprise Risk

A

Encompasses all major risks faced by a business firm, which include: pure risk, speculative risk, strategic risk, operational risk, and financial risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Personal Risk

A

Involve the possibility of a loss or reduction in income, extra expenses, or depletion of financial assets (Poor health, Involuntary unemployment, premature death of family head, insufficient income during retirement, etc.)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Property Risk

A

The possibility of losses associated with the damage, destruction, or theft of property (physical damage to home due to fire, tornado, vandalism, etc.)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Direct Loss

A

Financial loss that results from the physical damage, destruction, or theft of the property (broken escalator)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Indirect Loss

A

Financial loss that results indirectly from the occurrence of a direct physical damage or theft loss (profits lost due to broken escalator)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Liability Risk

A

The possibility of being held liable for bodily injury or property damage to someone else

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Loss Prevention

A

Reducing the frequency of losses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Loss Reduction

A

Reducing the severity of losses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Insurance (Long Definition)

A

The pooling of fortuitous losses by transfer of such risks to insurers, who agree to indemnify insureds for such losses, to provide other pecuniary benefits on their occurence, or to render services connected with the risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Insurance (Short Definition)

A

The business of transferring pure risk from an insured to an insurer by means of a two-party contract

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Adverse Selection

A

The tendency of persons with a higher-than-average chance of loss to seek insurance at standard rates

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Underwriting

A

Selection and classification of applicants for insurance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Life Insurance

A

Pays death benefits to beneficiaries when the insured dies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Health Insurance

A

Covers medical expenses because of sickness or injury

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Disability Plans

A

Pay income benefits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Property Insurance

A

Indemnifies property owners against the loss or damage of real or personal property

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Liability Insurance

A

Covers the insured’s legal liability arising out of property damage or bodily injury to others

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Casualty Insurance

A

Refers to insurance that covers whatever is not covered by fire, marine, and life insurance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Personal Lines of Insurance

A

Coverage that insures the real estate and personal property of the individuals and families or provide protection against legal liability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

Commercial Lines of Insurance

A

Coverage for business firms, nonprofit organizations, and government agencies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Expense Loading

A

The amount needed to pay all expenses, including commissions, general administrative expenses, state premium taxes, acquisition expenses, and an allowance for contingencies and profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

Loss Exposure

A

Any situation or circumstance in which a loss is possible, regardless of whether a loss occurs (a plant that could possible be damaged by an earthquake, or an automobile that may be damaged in a collision)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

Loss Frequency

A

The probable number of losses that may occur during some given time period

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

Loss Severity

A

The probable size of the losses that may occur

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

Maximum Possible Loss

A

The worst loss that could happen to the firm during its lifetime

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

Probable Maximum Loss

A

The worst loss that is likely to happen to the firm during its lifetime

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

Risk Control

A

Techniques that reduce the frequency and severity of losses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

Avoidance

A

A certain loss exposure is never acquired, or an existing loss exposure is abandoned

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

Loss Prevention

A

Measures that reduce the frequency of a particular loss

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

Loss Reduction

A

Measures that reduce the severity of a loss after it occurs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

Risk Financing

A

Techniques that provide for the funding of losses

48
Q

Retention

A

The firm retains part or all of the losses that can result from a given loss

49
Q

Retention Level

A

The dollar amount of losses that the firm will retain

50
Q

Current Net Income Retention

A

Losses are treated as current expenses

51
Q

Unfunded Reserve Retention

A

Losses are deducted from a bookkeeping account

52
Q

Funded Reserve Retention

A

Losses are deducted from a liquid fund

53
Q

Credit Line Retention

A

Funds are borrowed to pay losses as they occur

54
Q

Self Insure Retention

A

Large numbers, captive insurers

55
Q

Captive insurer

A

An insurer owned by a parent firm(s) for the purpose of insuring the parent firm’s loss exposures

56
Q

Single Parent Captive

A

Owned by only one parent

57
Q

Association or Group Captive

A

Owned by several parents

58
Q

Self-insurance/Self-funding

A

Part or all of a given loss exposure is retained by the firm (worker’s compensation and group health benefits, for example)

59
Q

Risk Retention Group

A

A group captive that can write any type of liability coverage except employer liability, worker’s compensation, and personal lines

60
Q

Non-insurance transfer

A

A method other than insurance by which a pure risk and its potential financial consequences are transferred to another party

61
Q

Deductible

A

A provision by which a specified amount is subtracted from the loss payment otherwise payable to the insured

62
Q

Excess Insurance Policy

A

The insurer does not participate in the loss until the actual loss exceeds the amount a firm has decided to retain

63
Q

Manuscript Policy

A

A policy specially tailored for the firm

64
Q

Cost of Risk

A

Includes premiums paid, retained losses, outside risk management services, financial guarantees, internal administrative costs, taxes, fees, and other expenses

65
Q

Financial Risk Management

A

The identification, analysis, and treatment of speculative financial risks

66
Q

Commodity Price Risk

A

The risk of losing money if the price of a commodity changes

67
Q

Interest Rate Risk

A

The risk of loss caused by adverse interest rate movements

68
Q

Currency Exchange Rate Risk

A

The risk of loss of value caused by changes in the rate at which one nation’s currency may be converted to another nation’s currency

69
Q

Enterprise Risk Management (ERM)

A

A comprehensive risk management program that addresses the organization’s pure, speculative, strategic, and operational risks

70
Q

Strategic Risk

A

Uncertainty regarding an organization’s goals and objectives

71
Q

Operational Risk

A

Uncertainty that develops out of business operations, such as product manufacturing

72
Q

Personal Risk Management

A

Refers to the indemnification of pure risks faced by an individual or family, and to the selection of the most appropriate technique for treating such risks

73
Q

Financial Risk Management

A

Refers to the identification, analysis, and treatment of speculative financial risks

74
Q

Commodity Price Risk

A

The risk of losing money if the price of a commodity changes

75
Q

Interest Rate Risk

A

The risk of loss caused by adverse interest rate movements

76
Q

Currency Exchange Rate Risk

A

The risk of loss of value caused by changes in the rate at which one nation’s currency may be converted to another nation’s currency

77
Q

Integrated Risk Management Program

A

A risk treatment technique that combines coverage for pure and speculative risks in the same contract

78
Q

Double-Trigger Option

A

A provision that provides for payment only if two specified losses occur

79
Q

Chief Risk Officer

A

Officer responsible for the treatment of pure and speculative risks faced by the organization

80
Q

Underwriting Cycle

A

Refers to the cyclical pattern of underwriting stringency, premium levels, and profitablity

81
Q

“Hard” Market

A

Tight standards, high premiums, unfavorable insurance terms, more retention

82
Q

“Soft” Market

A

Loose standards, low premiums, favorable insurance terms, less retention

83
Q

Combined Ratio Formula

A

(Paid Losses + Loss Adjustment Expenses + Underwriting Expenses) / Premiums

84
Q

Capacity

A

Refers to the relative level of surplus

85
Q

Surplus

A

The difference between an insurer’s assets and its liabilities (aka net worth)

86
Q

Clash Loss

A

Occurs when several lines of insurance simultaneously experience large losses

87
Q

Consolidation

A

Refers to the combining of businesses through acquisitions or mergers

88
Q

Insurance Broker

A

An intermediary who represents insurance purchasers

89
Q

Securitization of Risk

A

The transfer of insurable risk to the capital markets through creation of a financial instrument

90
Q

Catastrophe Bond

A

Permits the issue to skip or defer scheduled payments if a catastrophic loss occurs

91
Q

Weather Option

A

Provides a payment if a specified weather contingency (e.g. high temperature) occurs

92
Q

Independent Event

A

The occurrence of one event does not affect the occurrence of the other event

93
Q

Dependent Event

A

The occurrence of one event affects the occurrence of the other event

94
Q

Mutually Exclusive

A

The occurrence of one event precludes the occurrence of the other event

95
Q

Regression Analysis

A

Characterizes the relationship between two or more variables and then uses the characterization to predict values of a variable (for example, the number of physical damage claims for a fleet of vehicles is a function of the size of the fleet and the number of miles driven each year)

96
Q

Loss Distribution

A

A probability distribution of losses that could occur

97
Q

Time Value of Money

A

Must be considered when decisions involve cash flows over time

98
Q

Compounding

A

A present value is converted to a future value

99
Q

Discounting

A

A future value is converted to a present value

100
Q

Net Present Value

A

The sum of the present values of the future cash flows minus the cost of the project

101
Q

Internal Rate of Return

A

The average annual rate of return provided by investing in the project

102
Q

Risk Management Information System (RMIS)

A

A computerized database that permits the risk manager to store and analyze risk management data

103
Q

Intranet

A

A website with search capabilities designed for a limited, internal audience

104
Q

Risk Map

A

A grid detailing the potential frequency and severity of risks faced by the organization (each risk must be analyzed before placing it on the map)

105
Q

Value at Risk (VAR) Analysis

A

Involves calculating the worst probably loss likely to occur in a given time period under regular market conditions at some level of confidence

106
Q

Catastrophe Modeling

A

A computer-assisted method of estimates losses that could occur as a result of a catastrophic event

107
Q

Warranty

A

Statement that becomes part of the insurance contract and is guaranteed by the maker to be true in all respects

108
Q

Representation

A

Statement made by the applicant for insurance

109
Q

Concealment

A

Intentional failure of the applicant for insurance to reveal a material fact to the insurer

110
Q

Consideration

A

The values that each party exchange

111
Q

Agent

A

Someone who has the authority to act on behalf of a principal (the insurer)

112
Q

Express Powers of an Agent

A

Powers specifically conferred on agent by agreement with principal

113
Q

Implied Powers of an Agent

A

Powers to perform all acts incidental to agency agreement

114
Q

Apparent Powers of an Agent

A

Authority reasonable inferred by others based on situation

115
Q

Waiver

A

Voluntary relinquishment of a known legal right

116
Q

Estoppel

A

Occurs when a representation of fact made by one person to another person is reasonably relied on by that person to such an extent that it would be inequitable to allow the first person to deny the truth of the representation

FI 341 (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions