When we focus on one risk only, we work with this matrix. It provides alternative financial action to undertake for each frequency/severity combination. Identify this matrix.

		A space risk matrix
		A forced matrix
		A risk map
		Kernel's risk matrix
		A risk management matrix

Identify the correct statement about the risk management matrix.

		It is also referred to as a risk map.
		It involves charting entire spectrums of risk, not individual risk "silos" from each separate business unit.
		It includes all important risks a firm is exposed to.
		It includes on one axis, categories of relative frequency (high and low) and on the other, categories of relative severity (high and low).
		It puts the risks a company faces into a visual medium to see how risks are clustered and to understand the relationships among risks.

Reserving liabilities involves the calculation of the amount that the insurer needs to set aside to pay future claims. It's equivalent to the _____ of a nonfinancial firm.

		equity
		assets
		reserves
		debt
		market value

For an insurance company, the asset-liabilities matching ensures:

		that insurance policies are not issued at high risk areas.
		risk minimization so that minimum claims are filed.
		liquidity so that when claims come due the firm has available cash to pay for losses.
		transparency among the insurers and the policyholders.
		that individuals and groups that do not have to ability to pay premiums are not insured

Which of the following is a similarity between forwards and futures?

		Both are traded in the over-the-counter market.
		Both can be tailored to meet specific customer needs.
		Both trade on an exchange with standardized contract specifications.
		The prices for both derive from the spot, or cash market, which is "today's" price for a particular asset.
		Both are agreements that give the right (but not the obligation) to buy or sell an underlying asset at a specified price at a specified time in the future.

4 points

The strategy of swaps are known as:

		"lock it in" defense.
		"switch out of it" defense.
		"cap" defense.
		"floor" defense.
		"ceiling" defense

The risk of an insurer with more exposures is relatively lower than that of an insurer with fewer exposures under the same expected distribution of losses. How do small insurers reduce the uncertainty in predicting losses?

		They use the sharing of data that exists in the insurance industry.
		They try to reduce the severity of exposures.
		They use the risk avoidance method to reduce losses.
		They use the risk retention method to reduce losses.
		They cannot reduce the uncertainty in predicting losses

The insurer assumes the insureds risk by promising to pay whatever loss may occur as long as it:

		is not a catastrophic loss and the insurer has enough funds to cover it.
		fits the description given in the policy and is not larger than the amount of insurance sold.
		is not covered by the federal insurance agencies.
		has reinsured the risk to a larger insurer or a federal insurance agency.
		premiums are paid.

The bulk of the premium required by the insurer to assume risk is used to compensate those who incur covered losses. Loss sharing is accomplished through premiums collected by the insurer from all insureds--from those who may not suffer any loss to those who have large losses. In this regard, the losses are shared by all the risk exposures. This is the essence of:

		risk acceptance.
		risk pooling.
		risk severity.
		risk mapping.
		risk transfer

Which of the following explains why insurance companies have separate divisions within its underwriting department for personal lines, group lines, and commercial business?

		The method of forecasting and calculating frequency of losses is different in each type of insurance.
		The legal procedures are different in each type of insurance.
		The criterion to assign insureds into their appropriate risk pool for rating purposes is different for each type of insurance.
		The level of expertise in group and commercial lines are much higher than those of personal lines, which include individuals.
		The level of reserves needed for each type of insurance is different and should be kept separately for effective handling of funds.

Identify the correct statement about independent agents.

		They usually represent a single insurance company.
		They are compensated on a salary basis by the insurance firm.
		They pay all agency expenses.
		They have the responsibility of collecting premiums on all circumstances.
		Legally, they represent the customers

Identify the characteristic feature of a broker than differentiates him/her from an agent.

		They are compensated by the insured.
		They do not represent the insurance company or the buyer.
		They legally represent the insurance company.
		They act as the insured's legal agent when the business is placed with an insurer.
		They work under the agent, who hire and train them and pay them a monthly salary.

4 points