. The risk manager of ABC Inc. bought insurance on a large wood-frame building. The insurance covered losses caused by a number of perils, including fire. The building was severely damaged by a peril that wasnt covered by the insurance. The risk manager set fire to the damaged building and filed a fire claim with the insurer. The insurer paid the claim. This scenario illustrates:

a. legal hazard. b. attitudinal hazard. c. physical hazard. d. moral hazard.

One team approach to risk identification involves company risk management personnel meeting with company leaders, key employees, and stakeholders for a group discussion of the risks facing the organization. This team approach to risk identification is:

a. a facilitated workshop. c. the Delphi technique. e. scenario analysis.

b. SWOT analysis. d. HAZOP analysis.

5. A.M. Best Company assigned an insurance company a preliminary rating. Before releasing the rating to the public, officials at A.M. Best decided to review all of the information examined in assigning the preliminary rating. Which of the following, if discovered during the review process, would lead A.M. Best to consider raising the preliminary rating (assigning a stronger rating, e.g. an A rather than an A-)?

a. Discovering that the combined ratio was 104.2, not 102.4.

b. Discovering that earned premiums were overstated by $3,500,000.

c. Discovering that the expense ratio was 36.3, not 33.6.

d. Discovering that the ratio of surplus and capital to assets was 36.1 percent, not 31.6 percent.

e. Discovering that the ratio of net premiums written to surplus was 1.8, rather than 1.2.

6. What analogy did Mr. Patterson use repeatedly in the Walton Lecture to demonstrate the negative impact of shifting regulatory standards in insurance markets?

a. A lawyer hiding evidence that is detrimental to his or her client.

b. A business not investigating an increase in uncollectable (bad) debts.

c. A sports referee calling penalties unfairly in order to benefit the home team.

d. A casino changing the rules of a game of chance after wagers had been made.

e. A mechanic responsible for maintenance of fleet vehicles falsifying maintenance records.

All of the following are benefits of risk management to a large business organization EXCEPT:

a. reduced deterrence impact of hazard risk d. maximized cost of risk

b. meeting legal and regulatory requirements e. profit maximization

c. improved management of downside risk