Risk management

Questions and Answers

Ch : 1

Risk and its treatment

Q1) Define risk?

A1) Risk is uncertainity concerning the occurency of loss.

Q2) what is the loss exposure?

A2) loss exposure are any situation or circumistance in which aloss is posible, regadless of whether loss occure.

Q3) what is the difference between objective risk and subjective risk?

A3) the difference between objective risk and subjective risk:

 Objective risk is the relative variation of actual loss from expected loss (it can be measure).
 Subjective risk is uncertainity based on person’s mental condition.

Q4) what is meant by “chance of loss”?

A4) chance of loss is the probability that an event of loss will occur.

Q5) what are the assumptions of risk?

A5) Assumptions of risk are:

 Deductive reasoning
 In ductive reasoning

Q6) what is meant by “peril”?

A6) peril defined as the couse of the loss.

Q7) what is the hazzard and explain different types of hazzard?

A7) hazzard are the condition that increases the frequency or severity of loss.

Hazzard clasified four (4) diferent types and they are:

1) Physical hazzard: are physical conditions that increase the ferequency or severity of loss.
Eg: defective wiring in the buildig
2) Attitudinal hazzard: are carelessness or indifferent of loss.
Eg: leaving carkeys in an unloked car.
3) Legal hazzard: refers the charecteristics of legal system or regulatory environment that increase the
frequency or severity of loss.
Eg: hazzard coused by low

Q8) what are the calassifications of risk?

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A8) cassifications of risk are

 Pure and speculative risk

 Diiversifiable and non diversifiable risk
 Enterprise risk

Q9) why the financial risk refers to uncertainity loss?

A9) Becouse of adverse changes of intrest rates and foregn exchange rates

Q10) why it’s good for that enterprise risk management combines in to single unified treatment?

A10) becouse of low cost and it’s easy to solve any problem for asingle tearing.

Q11) explain the major personal risks?

A11) major personal risks are:

 Personal risk : risk that directly effect for indivituals or families ,such as:
 Premeture death of family head
 Insuficient income during retirement
 Property risk: involves the posibility of loss associated with theft of property.
 Direct loss: loss that result for a physical damages
 Indirect loss: loss that result for theft of property
 Liability risk: involve the posibility of being held legaly liable for propert damage to some one else.
 There is no maximum uper limit of respect with losses.

Q12) what are the three major burdens that results the risk on society?

A12) three major burdens are :

1) To maintain large emergence fund to pay for unexpected losses.

2) The risk of liability low suits may discourage inovation.
3) Risk couses worry and fear.

Q13) Explain techniques for managing the risk ?

A13) there are two techniques for managing the risk:

 Risk control: refers to techniques that reduce the frequency or severity of loss.
 Loss avoidance: liability sues not produce the product.
 Loss prevention: refers activities to reduce frequency and severity.
 Loss reduction: refers activities to reduce only the severity of loss. ( Eg: Sprikiers )
 Risk finance: refers to techniques that provide for payment of losses after they occur.
 Retention
 Non-insurance transfer

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 insurence

Q14) differentiate between hedging and incorporation?

A14) Hedging is transfer looses to some one who is better positon to control losses.

Incorporation is a tansfer loss that is not comercially insurable.

Ch: 2

Introduction to risk management

Q15) what is the Risk management?

A15) Rm: is the process of identified loss exposure faced by the organization and select the most apropriate

Technique of tearing.

Q16) what are the objectives of risk management?

A16) objectives of risk are pre-loss and post loss objectives.

 pre-loss objective:
 prepare potential in the most economical way insurance premium paid
 reduce anxiety Eg: lo suits of defective products
 meet any legal obligation
 post loss obective:
 servival of the firm
 continue operation to provide service “ lost to competitors”
 stability of earnings
 continued growth of the firm
 minimize the effect of loss will have on the society

Q17) what are the process of risk mgt?

Q18) what are the several methods that used risk managers to pay retained losses?

A18) these methods are:

1) current net income

2) funded reserve
3) unfunded reserve
4) credit line

Q19) what are the several in formatoins that risk managers use when they analyze loss exposure?

A19) these in formations are:

1) Risk analysis questionair and check list

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2) physical inspection
3) flow charts
4) financial statement
5) historical loss data

Q20) what are the factors that create new loss exposure?

A20) inventory trends and market changes can create new loss exposure.

Q21) when risk retention is used?

A21) Risk retention is used for when:

 there is no other method of treatment is available

 frequency is heigh and severity is low

Q22) what is the captive insureance? And what are the classifications of captive insurance?

A22) captive insurance: is insurer owned by aparent firm for purpose of parrent’s loss.

Classifications are pure (single) and associated (group).

Q23) what are the reasons for forming captive insurer ?

A23) Reasons for forming captive insurer are:

 parent firm may have dificulty to obtain insurance.

 To take advantages of favorable regulatory inviroment.
 Cost maybe lower, then comercial insurance.
 Captive insurance may asource of profit.

Q24) is a captive insurer generally tax-deductible?why or why not?

A24) captive insurer are not generally tax-deductible, but being tax-deductible if:

 Not away to maximize the expense.

 Not subsidary.
 The insureds are not the same the shareholders of the captive.

Q25) what are the adv. and dis adv. of risk retention?

Q26) what are the 5 key things that need risk manager when make checking?

A26) the five keys are:

1) Risk manager select the coverage needed and policy provided

2) Risk manager select the insurer to provide the coverage
3) Risk manager negotiate the term of insurance contract
4) Information concerning the insurance coverage

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5) Risk manager must periodically review the insurance

Q27) what are the benefits of risk management?

A27) the benefits of risk management:

 To atain the objectives of Risk management (pre-loss and post-loss).

 Reduce a firm’s “cost of risk”.
 To develop society becouse they involve direct and indirect loss.

Ch:3
Types of insurance and marketing system

Q28 what are the assets of financial service sector?

A28) the assets of financial service sector:

 Insurance
 Banking
 Security
 Pentions
 Government related
 Others

Q29) Explain the couses of changing financial service sector?

A29) couses of changing financial service sector are:-

 Consolidation: merger and acquisition, becouse of competative reasons.

 Convergence: financial institution now sell wide variety of financial products are in the market.

Q30) explain classifications of insurance?

A30) classifications of insurance are:

 Stock insurer: corporation owned by stock holders.

Its objective is to earn profit for stockholders, increasing the value of stock and paying dividends.
 Mutual insurer: corporation owned by policy owners.

Q31) what are the classifications of mutual insurer?

A31) the classifications of mutual insurer are :

 Advanced premium mutual: policy owners are no profit.

 Assesment mutual: an additional amount if insurer’s financial operations are unfavorable.
 Feternal insurer: member of social or religious organization.

Q32) what are the structural changes of mutual insurance?

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A32) the structural changes of mutual insurance are:

 Increase company merger

 Reduce number of insurance companies.
 Reduce operating cost.
 Increase size of insurance.
 Demutualization: convert mutual insurer into stock insurer.
 Holding company: direct and indirect control of authority.

Q33) what is the diference between agent and broker?

A33) the diference between agent and broker are:

 Agen : represents the insurance company (principle)

 Broker: represents the customer.

Q34) what is the importance of private insurance?

A34) the importance of private insurance:

 Protection and economic security.

 Restore completely or partly then previous financial position.
 Provide job security.

Ch: 4

Insurance company operations

Q35) what is rate making?

A35) Rate making: refers to the pricing insurance and calculation of insurance premium.

Q36) what are the rate making methods?

A36) the rate making methods are:

 Base rate of premium.

 Experienced rate.

Q37 ) what is the diference between actuaries and underwriting?

A37) diference between actuaries and underwriting are :

 Actuaries: use data todetermine premium that should be charged in to agiven bucket.
 Underwriting: decide which bucket an insurance application fit into the operation.

Q38) what are the underwriting guides?

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A38) the underwriting guides are:

 Accaptable.
 Amount that can be written.
 Forms and rating plan to be used.
 Approval by seniorunderwritter.

Q39) what are the underwriting principles?

A39) the underwriting principles:

 Attain an underwriting profit.

 Provide equity (fair) among the policy holders.
 Select prospective insureds according to the company’s underwriting standard.

Q40) what are the sources of information that use the underwritter?

A40) information 0f underwritter come from :

 Agent report
 Application
 Inspection report
 Physical inspection
 Physical examination and attending physician’s report

Q41) what are the factors for underwritting consideration?

A41) factors for underwritting consideration:

 Rate adiquecy (profit).

 Availability (reinsurence).
 Cancell or renewed.

Q42) Explain principles that forms of reinsurence?

A42) principles that forms of reinsurence are:

1) Facultative reinsurence: is acase by case method used when company recieves application
insurance.
 Advantage: flexibility.
 Disadvantage: uncertainity.
2) Treaty reinsurence: means the primary insurer has agreed to code insurance to the insurer.
 Advantage: no uncertainity.
 Disadvantage: if the primary insurerhas poor selection, reinsurer will incur loss.

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Q43) what are the methods for sharing losses?

A43) the methods for sharing losses:

 Pororata method: loss and premium based on same portion.

 Excess method:…………………………………………………..

Q44) explain life insurer asset acounts?

A44) life insurer asset acounts are:

 General accounts (fixed )

 Specific policy.
 Used to fill any gaps.
 Separate accounts ( variable)
 Less restriction.

Q45) what is the importance of life insurance?

A45) the importance of life insurance:

 Long term contract and the ability.

 Investment income, reduce cost of life insurance.
 Life insurance premium (important source of capital funds to the company).

Q46) what is the importance of property and casual insurance?

A46) the importance of property and casual insurance are:

 Control and liability are short term in nature.

 Investmen income is important of offesting on property and caual insurance.

Q47) what are the other departments of insurance company?

A47) other departments of insurance company are:

 Accounting department.
 Legal department.
 Information system.
 Loss control service.

Ch : 5

Financial operations of insurence

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