# Shared Flashcard Set

## Details

Corporate Risk Management
Test 2
253
10/13/2009

Term
 probability
Definition
 likelihood of a particular event occurring, or of a particular outcome?
Term
 0 and 1
Definition
 Probabilities can be between ___ and ___?
Term
 o        A proportion of losses among a large number of exposures A proportion of losses over a long period of time
Definition
 What are the two ways to calculate probabilities for insurance purposes?
Term
 theoretical
Definition
 Law of Large Numbers used for decision making, as # of exposures ↑, actual results approach _________projections?
Term
 o        A proportion of losses over a long period of time
Definition
 Ways to calculate probability for insurance: Preferred method for natural disaster risks, uses time with a large # of similar exposures, and bases losses on historical evidence?
Term
Definition
 There is always a ________ between time proportions and exposure proportions?
Term
 Mutually Exclusive
Definition
 -          if one thing happens, we know that the other cannot occur?
Term
 Mutually exclusive
Definition
 Probability rules:  The probability of A and B occurring = 0?
Term
 Mutually exclusive
Definition
 Probability Rules: For example, we cannot have a total loss and a partial loss for the same exposure?
Term
 Independence
Definition
 the occurrence of one event has no effect on the likelihood of another event occurring
Term
 Independence
Definition
 Probability Rules: o       Firms reduce risk when they pool independent risks o       The probability of A and B occurring = P(A) x P(B)?
Term
 Independence
Definition
 Probability rules: o       For example, an auto loss in CA has no effect on an auto loss in IL
Term
 Conditional Probability
Definition
 -          the chance of one event occurring, given additional information about another event.
Term
 Probability Distributions
Definition
 constructed after empirical probabilities have been determined, includes possibility of every outcome, so the sum of probabilities in a distribution must equal 1.  Contains outcomes that are mutually exclusive and collectively exhaustive.
Term
 yes
Definition
 Probability Distributions: -          Number of Occurrences (Frequency Distribution) – Can it have a zero value?
Term
 no
Definition
 Probability Distributions: -          Severity of Losses – conditional on frequency (or event occurring), so can it have a zero value?
Term
 mean
Definition
 Statistical Measures: weighted average, (total results / number of units)?
Term
 Median
Definition
 Statistical Measures: location of the 50th percentile?
Term
 mode
Definition
 Statistical Measures: the most common event?
Term
 Range
Definition
 Statistical Measures: highest outcome – lowest outcome?
Term
 Coefficient of Variation
Definition
 Statistical Measures: o       standard deviation / mean – used to compare variability of distributions w/ different shapes
Term
 symmetric
Definition
 Theoretical Probability Destributions (severity): Normal is _______?
Term
 positively
Definition
 Theoretical Probability Destributions (severity): Lognormal is _________ skewed?
Term
 positively
Definition
 Theoretical Probability Destributions (severity): Pareto is __________ skewed?
Term
 positively
Definition
 Theoretical Probability Destributions (severity): Gamma is _______skewed?
Term
 Convolution
Definition
 Total claims distribution is also known as ______________?
Term
 expected
Definition
 The law of large numbers states that as the number of exposures increases, actual results will approach the ________ results?
Term
 Aggregation
Definition
 Implications for ERM: ____________ Problem- if multiple areas are impacted simultaneously, it leads to larger losses
Term
 Natural
Definition
 Implications for ERM: ___________ Hedges- situations where so much negative correlation allows inactions to be appropriate
Term
 Regression Analysis
Definition
 attempt to measure the degree of relationship between two or more variables and a variable of interest?
Term
 Correlation
Definition
 Statistical relationship between two variables, not causality?
Term
 T
Definition
 T/F? If Correlation=0, then variables are independent?
Term
 no
Definition
 T/F? If Correlation=0, then variables are correlated?
Term
 -1,+1,+1
Definition
 Correlation: Relationship can be between __ and ___, with ___ being a perfect positive relationship.
Term
 Variable of Interest
Definition
 In Regression Analysis, the _________ __ _______ is the predicted/dependent variable, (Y).
Term
 analytically
Definition
 Regression Analysis, The Variable of Interest: The direction of the relationship must be established ____________?
Term
 no
Definition
 In Regression Analysis, can the variable of interest be established statistically?
Term
 predicted
Definition
 In Regression Analysis, Predictors/Independent Variables (x) are used to forecast the __________ value?
Term
 more
Definition
 Regression Analysis, in a multiple regression, there are ______ than one predictors
Term
 determination; 0,1
Definition
 In regression analysis, R2 is the coefficient of _____________? It can be between ___ and ___?
Term
 stastical significance
Definition
 In Regression analysis, P values are used for _____________ ____________ tests?
Term
 Loss Forecasting
Definition
 Estimates of some future value, amount, or qty calculated by mathematical techniques determined by intuition
Term
 2nd
Definition
 Loss Forecasting takes place during the ___ step in teh RM process, and includes forecasting size of losses that could occur, as well as the number of those losses that occurs.
Term
 Loss Forecasting
Definition
Term
 #of claims/# of workers
Definition
 Loss Forecasting: Incident rate?
Term
 Total Losses/# of claims
Definition
 Loss Forecasting: Average Severity?
Term
 Incident rate * Exposure
Definition
 Loss Forecasting: Claim Frequency?
Term
 Claim frequency* average severity
Definition
 Loss Forecasting: total losses?
Term
 regression
Definition
 We use _________ modeling to forecast frequency and severit?
Term
 prevention
Definition
 Concepts in loss control: Frequency- main concept is loss __________?
Term
 reduction
Definition
 Concepts in loss control: Severity- main concept is loss ________?
Term
 Heinrich's Donino Theory
Definition
 ___________ ____________ Theory: One thing leads to another, try to remove one of the pieces?
Term
 Heinrich's Donino
Definition
 Loss Control:  The Human Approach relies on _________ _________ theory?
Term
Definition
 Loss Control: Physical Engineering Approach relies on ________ ________ ________ approach?
Term
Definition
 Loss Control:  _____________ __________ _______ approach: control energy buildup separate released energy from persons or objects
Term
 human, mechanical
Definition
 Loss control: Human vs. Mechanical To have a good program, you must address _______ error first, then apply _________ efforts?
Term
 compensation Medical expenses
Definition
 Determining Economic Feasibility of Loss controls: Cost of Accidents- 2 Direct costs include?
Term
 indirect
Definition
 Determining Economic Feasibility of Loss controls: Which expenses are usually higher, direct or indirect?
Term
 4 to 8 times as great
Definition
 Determining Economic Feasibility of Loss controls: indirect costs are often ___ to___ times as great as direct costs
Term
 accident
Definition
 Lower _______ costs is the benefit of loss control?
Term
 are
Definition
 Costs of Loss Control Measures: Actual costs of implementations (are/are not) certain?
Term
 are not
Definition
 Costs of Loss Control Measures: Potential benefits of loss control (are/ are not) certain?
Term
 now
Definition
 Costs of Loss Control Measures: When comparing costs and benefits, it makes sense to spend money ______ to try to aviod losses in the future?
Term
 Probability+ TVM= PV of expected costs with PV of expected benefits
Definition
 Costs of Loss Control Measures: Formula for comparing costs and benefits?
Term
 Implementation
Definition
 Loss Control Programs: _____________ includes: policy manual hiring training promotion of program reports executive safety committees
Term
 operating unit
Definition
 Loss Control Programs: Profit Centers are mostly at the ________ ___________ level?
Term
Definition
 Loss Control Programs, Reward-Penalty System:   _________ allocation- need to give incentive to care about risk costs
Term
 Cost
Definition
 Loss Control Programs, Reward-Penalty System: ________ Allocation- aligns interests, get profit centers to care about loss costs?
Term
 accounting; tax
Definition
 Cash Flows vs. Accounting values Depreciation is a/an _____________ value, but generates a ______ savings, which results in a cash savings
Term
 Timing Opportunity cost of capital Cash flows vs. accounting values
Definition
 What are three general considerations in evaluating loss control projects?
Term
 Payback
Definition
 Evaluation methods used in Evaluating Loss Control Projects: Doesn't conisder time value of money Simpliest way of looking at project ideas The time it takes to recoup initial investment
Term
 NPV
Definition
 Evaluation methods used in Evaluating Loss Control Projects: Considers size of project, but firm must select a discount rate Value, in today's dollars, of the future cash flows of a project Accept projects where NPV is greater than 0?
Term
 NPV
Definition
 Evaluation methods used in Evaluating Loss Control Projects: Which of the three is teh best method?
Term
 no
Definition
 Evaluation methods used in Evaluating Loss Control Projects: With IRR, do you need to know the cost of capital?
Term
 IRR
Definition
 Evaluation methods used in Evaluating Loss Control Projects: What is the most commonly used method?
Term
 IRR
Definition
 Evaluation methods used in Evaluating Loss Control Projects: Is the rate at which NPV=0 Accepts projects whose IRR exceeds "hurdle rate' or company's cost of capital?
Term
 professional liability
Definition
 E & O coverage is essentially ____________ ___________ coverage?
Term
 Dissatisfaction with current service
Definition
 Potential Reasons for Marketing an Insurance Program: Service issues involve loss runs and claims handling Financial solvency of current insurer may have become an issue If a company has changed, new coverages may be needed.  Products purchased has become obsolete?
Term
 Insured may believe premium is too high
Definition
 Potential Reasons for Marketing an Insurance Program: RM Programs are more than just finding the lowest price Higher price may signal higher qualtiy
Term
 expectations
Definition
 Potential Reasons for Marketing an Insurance Program: Marketing cycle changes- differing cycles affect __________?
Term
 Market Cycle Changes
Definition
 Potential Reasons for Marketing an Insurance Program: If the market is hard, it leads to high prices and worse terms If the market is softening, low prices and good terms may lead a retention company to revamp insurance
Term
 1
Definition
 Potential Reasons for Marketing an Insurance Program: Don't bid too often- normally should not exceed __ time in 5 years?
Term
 Don't bid too often
Definition
 Potential Reasons for Marketing an Insurance Program: Process of bidding itself is costly, and irritates market Insurers do not make money off an insured until after 1st year, so if constantly changing, some insurers may refuse to quote a price Can reduce loyalty of insurers and their willingness to stand by insured in difficult times
Term
 Risk Management; long-term
Definition
 Selecting Qualified Agents/Brokers Agent should be treated as an extension of the ________ ________ department, or like a ________-________ employee?
Term
Definition
 Characteristics of Agents and Brokers: Experience- not just time in business, but whether they have experience with similar ____________?
Term
Definition
 Characteristics of Agents and Brokers: Account Team- make sure people selling the account are also teh ones who ________ the account?
Term
 yes
Definition
 Should Agents and brokers provide evidence of E & O coverage?
Term
 \$1 million
Definition
 Agents and brokers usually have at least a \$________ limit of E & O coverage?
Term
 stop-gap
Definition
 Errors and Omission coverage for brokers and agents provides a ________-_______ for breaches by broker/agent?
Term
 90-120 days (3-4) months
Definition
 When allocating markets if using multiple agents/brokers, you should allow adequate time, at least ___ to ___ days?
Term
 2
Definition
 Allocating markets if using multiple agents/brokers: When implementing the program, you should allow __ weeks minimum before renewal date for implementation?
Term
 organized
Definition
 Good Underwriting Specifications: Insured is "selling" its loss expsoures, so it should be as ________ as possible?
Term
 safety
Definition
 A risk management program, when combined with a solid ________ program, is a good start to safe and cost-effective management of risk?
Term
 Policy
Definition
 When developing a risk management program, you should have a Risk Management ________ Statement that clarifies goals/objectives of the company in dealing with risk?
Term
 Retention
Definition
 Drawing on funds originating within the firm or its economic family to pay for losses?
Term
 Active Retention Passive Retention
Definition
 What are the two main types of retention?
Term
 Active
Definition
 _________ Retention- when teh organization plans to retain losses (self-insurance)
Term
 passive
Definition
 _________ retention- is an unplanned retention of losses (informal retention)
Term
 insurance
Definition
 Pure____________ A transfer plan, under which an organization uses another organization's resources to pay for or to offset its losses
Term
 high-severity
Definition
 In Pure Insurance, on one end of the extreme, used for _____-_________ losses?
Term
 Retention
Definition
 Pure_______? A retention plan, under which an organiztion uses its own resources
Term
 low-severity
Definition
 Pure Retention, on one end of the extreme is used for ____-________ losses?
Term
 mix
Definition
 Pure Insurance vs. Pure Retention Most plans are a ______ of the two elements, such as an insurance plan with a deductible
Term
 Hybrid
Definition
 An insurance plan with a deductible is an example of a _________ plan, and can be used for all losses regardless of their severity
Term
 periods of time
Definition
 Deductibles can be dollar amounts or _________ __ ___________?
Term
 Deductibles
Definition
 Specific Techniques of Retention: In exchange for premium reduction, insured agrees to reimburse insurer for all losses up to the deductible level can be dollar amounts or periods of time?
Term
 Current Expensing of Losses
Definition
 Specific Techniques of Retention: ________________ ______________ ___ ____________? Company pays losses as they are incurred out of current income Best for low-severity losses
Term
 Unfunded reserve
Definition
 Specific Techniques of Retention: _______ __________? Losses disclosed in financial statements, represent a liability on the balance sheet
Term
 Funded Reserve
Definition
 Specific Techniques of Retention: _________ __________? Liability posted and funds are accumulated to match projected losses
Term
 Borrowing
Definition
 Specific Techniques of Retention: ___________? Solicit funds as needed A Letter of Credit is the best way to do this because it can lock in a rate opportunity in advance of the loss
Term
 Captive
Definition
 Specific Techniques of Retention: _________? Formalized retention
Term
 higher
Definition
 The more debt a firm has, the _______ the incentive to use transfer plans?
Term
 1-5%
Definition
 Methods for Selecting Retention: Total Assets- ___-____% of total assets, based on ability to borrow funds?
Term
 Current assets- current liabilities
Definition
 Specific Techniques of Retention: Working Captial formula?
Term
 10-15%
Definition
 Specific Techniques of Retention: Working Capital- ___-___% of working captial, based on liquidity of the firm Uses a smaller base number, so there is a higher percentage?
Term
 Earnings and Surplus
Definition
 Specific Techniques of Retention: Measures earnings and borrowing power; liquidity position is the key?
Term
 1-5%
Definition
 Specific Techniques of Retention: Earnings and surplus- __-__% of average pre-tax annual earnings and retianed earnings (surplus)
Term
 captial
Definition
 Retention: Cost of __________ is the opportunity cost between retention and risk transfer?
Term
 T
Definition
 Retention: Tax considerations: (T/F)- a dollar earned today is worth more than a dollar earned tomorrow?
Term
 retention
Definition
 A firm generating a lot of cash flows will be more inclined to select __________ risk management method
Term
 transfer
Definition
 A very highly leveraged firm will select the risk ________ risk management method?
Term
 insurer's
Definition
 A risk transfer program allows you to effectively take liabilities off of your balance sheet and move them to the _________ balance sheel?
Term
 unfunded
Definition
 A ____________ reserve is a liability that we are not posting funds to match it.
Term
 pension plan
Definition
 An example of a funded reserve is a ___________ ______?
Term
 working
Definition
 __________ capital can also be referred to as liquid capital?
Term
 lowest
Definition
 We want the _______ possible debt/equity ratio to maintain a profitable company?
Term
 highest
Definition
 We want the ________ possible current ration to maintain a profitable company?
Term
 Retention
Definition
 draws on funds originating within the firm or its economic family?
Term
 active
Definition
 ___________ retention is planned retention?
Term
 passive
Definition
 ___________ retention is unplanned retention?
Term
 30%
Definition
 nEstimated that ART (Alternative Risk Transfer) is about _____% of the total commercial risk protection market?
Term
 self
Definition
 Deductibles and retentions are characteristics of _________ insurance?
Term
 Self Insurance Captives Risk Retention Groups Capital Market Securitizations
Definition
 What are the 4 Alternative Risk Transfer techniques?
Term
 worker's compensation
Definition
 _________ _________ accounts for the biggest % of the alternative risk transfer market?
Term
 Total Assets Working Captial Earnings and surplus
Definition
 What are the three most common methods for selecting a retention level?
Term
 assets; libalities
Definition
 Working capital is current _________ minus current __________?
Term
 liquidity
Definition
 Working captial is based on the ________ of a firm?
Term
 162
Definition
 Tax Considerations, Section _______? ¨expenses paid or incurred during the taxable year in carrying on a business are deductible ¨ ordinary and necessary
Term
 165
Definition
 Tax Considerations, Section ______?  ¨can deduct “casualty” losses not compensated by insurance ¨ closed and completed transactions only
Term
 1-5
Definition
 Methods for selecting retention: Earnings and Surplus _____ to ___%   annual earnings (pre-tax) and retained earnings (surplus)?
Term
 FASB #5
Definition
 _______________? When a loss has occured, and the amount can be reasonably estimated, this rule makes firms put the losses on financial statements?
Term
 probable, economic
Definition
 FASB #5 There is a conflict between IRS and FASB that relates to __________vs. ____________ performance?
Term
 tax
Definition
 FASB #5 If the loss is retained, financials take a hit, but firm recieves no ________ relief?
Term
 income
Definition
 Tax advantages of insurance? Insurance tends to smoothe ________?
Term
 deductions
Definition
 Tax advantages of insurance? Insurance accelerates _________ for losses?
Term
 depreciable
Definition
 Tax advantages of insurance? Insurance helps defer gain on ___________ property?
Term
 paid
Definition
 Tax advantages of insurance? Premium is tax deductible, while losses are decutible only when _____?
Term
 taxation
Definition
 Insurers vs. Non-Insurers? Insurers are treated differently with respect to __________?
Term
 paid losses+ reserves
Definition
 Formula for Incurred losses?
Term
 paid; incurred
Definition
 Insurers vs. Non-Insurers? Noninsurers can deduct _______ losses only Insurers can deduct ________ losses only
Term
 discount
Definition
 Insurers vs. Non-Insurers: Reserving Discretion? Insurers can sell a product with a built-in _________?
Term
 loss portfolio
Definition
 Retroactive insurance for MGM Grand- basically a _____ _________ transfer?
Term
 retroactive
Definition
 __________ insurance- magnitude/timing of losses can be insured?
Term
 Retrospective
Definition
 ______________ Insurance Rating Plans (Incurred Loss Retro)- Generally used for WC, Auto Liability, and General Liability
Term
 Retrospective Insurance Rating Plans
Definition
 _________ ____________ Rating Plans: Rating plan in which premium rate is adjusted after end of policy period based on a portion of the insured's actual losses during the policy period
Term
 Retrospective insurance
Definition
 ___________ __________ Rating Plans: Insured pays a deposit premium to insurer, which reimburses claimants for losses and pays other expenses such as loss adjustment costs, legal fees, and ocvers insurer's profits and overhead?
Term
 incurred
Definition
 Retrospective Insurance Rating Plans: Insured pays a deposit premium to insurer, which is based on projected average ________ losses?
Term
 deposit, actual
Definition
 Retrospective Insurance Rating Plans: _______ premium is paid up front, and premium adjusted after end of policy period. To really know what losses are, parties must wait to see what develops, and then look back to determine ____ rate?
Term
 actual
Definition
 Retrospective premium is the result of _____ losses?
Term
Definition
 Retro Plan: ____________ _________ portion limits extent to which an insured's actual losses are included in the formula When total losses under loss limit reach specified aggregate \$ amount, max premium level is reached, and insured pays no additional __________?
Term
 Retro; aggregate
Definition
 _______Plan: Up to loss limit, insured retains individual losses because they are used to raise/lower the retro-rated premium Insured pays a portion of premium on guaranteed cost basis to transfer portion of individual losses that exceed loss limit, and annual losses under loss limit to extent they exceed specified _________ amount?
Term
 Cash Flow
Definition
 ____ _______ Plans: Are also known as paid loss retro closer to a retention plan
Term
 Cash Flow
Definition
 _______ ________ Plans: Insured pays a small deposit at beginning of policy period, and reimburses insurer for a portion of losses as they are paid by insurer?
Term
 Insured
Definition
 Cash Flow Plans: _______ benefits from cash flow available on loss reserves for retained portion of it's losses, which might not be paid out for several years
Term
 unfunded
Definition
 Cash Flow Plans: _______ plan for retained portion of losses?
Term
 non-loss, deposit
Definition
 Cash Flow Plans: Amount required at policy inception is the ______-_____ portion of the premium plus a loss  _______ fund?
Term
 2-2.5
Definition
 Cash Flow Plans: Deposit fund of ___ to ___ months of estimated claims?
Term
 letter of credit
Definition
 Cash Flow Plans: __________ __ ______ often required, and insured must be financially secure to qualify To guarantee future payments for retained portion of losses
Term
 Captives
Definition
 a subsidiary owned by one or more parant organizations established primarily to insure the exposures of its owner?
Term
 Captives
Definition
 ___________? Hybrid risk financing plan b/c most combine elements of risk retention and transfer?
Term
 Retains; reinsurance
Definition
 Captives? _________ low to medium severity losses, and purchases   _______ to transfer parent's high severity losses
Term
 Bremuda; Vermont
Definition
 Across the globe, the largest domocile for captives is _________? In the US, the largest domocile for captives is_________?
Term
 WC, GL, Auto Liability
Definition
 Captives are generally used for _______ ________, ________ _________ and __________  _________losses that offer substanital cash flows?
Term
Definition
 Most captive insurers reinsure a _________ insurer that issues policies to parent and subsidiaries?
Term
 Captives
Definition
 ___________: Usually not licensed, or admitted, it transacts business in the states, provinces, and territories where parent's exposures are located?
Term
 fee
Definition
 Captives: Licensed insurer does not retian any of the losses, adn in effect "fronts" for teh captive in exchange for a ______?
Term
 Fronting
Definition
 Licensed Insurers are also called a ____________ Company- captive "rents" license of fronting company?
Term
 yes
Definition
 Captives: T/F? Has the US surpassed Bermuda as a domocile?
Term
 5,000
Definition
 Captives: Worldwide, there are nearly __________ captives?
Term
 Pure
Definition
 Types of Captives: ______ Captive one owner, who is the insured?
Term
 Profit Center
Definition
 Types of Captives: ______ ________ Captive one owner, many insureds?
Term
 Association/ Group
Definition
 Types of Captives: ________/ ______ Captive Multiple owners and insureds
Term
 assessing capital
Definition
 Types of Captives: Pools, Multi-owner, Rent-a-Captive 3rd party ________ _________ of captives?
Term
 Cost Coverage Control
Definition
 What are the 3 benefits of captives?
Term
 insurance
Definition
 Captives have reduced _______ costs?
Term
 net cash
Definition
 Captives have improved ____ ______ flows?
Term
 investment
Definition
 Captives have improved net cash flows; have pay-as-you-go for losses, plus insured/owner recieves _________ returns on unearned premium reserve?
Term
 jurisdictions
Definition
 Captives have improved coordinantion in multiple ___________?
Term
 Foriegn
Definition
 Captives: Improved Coordinantion in Multiple Jurisdictions _________ currency issue solved, and allocation of assets easier?
Term
 reinsurance
Definition
Term
 T
Definition
 T/F? Captives can purchase reinsurance
Term
 insurance, insurance
Definition
 Captives have a more stable ______ market, and improved _________ coverages b/c "insurer" is owned by insured?
Term
 restrictions
Definition
 Captives have fewer regulatory _________?
Term
 control, services
Definition
 Captives have improved loss _________ and claims ________?
Term
 association
Definition
 Captive Tax Treatment- __________ captives recieve better tax treatment?
Term
 no
Definition
 Is tax treatement of captives a sufficient reason alone to use a captive as an alternative risk transfer technique?
Term
 shifting; distribution
Definition
 Captive Tax Treatment: Best to have ______ and ________ for premiums to be deductible?
Term
 distribution
Definition
 Captive Tax Treatment: An example of ____________: having some % of unrelated business in the captive?
Term
 shifting
Definition
 Catpive tax treatement: An example of ________: some distribution of ownership?
Term
 Captive
Definition
 ________ Tax treatment: Some % of unrelated business arms- length ownership Some distribution of ownership
Term
 low
Definition
 Characteristics of Various Risk Financing Plans: Informal Retention? Best Suited for ___ loss severity?
Term
 low-medium
Definition
 Characteristics of Various Risk Financing Plans: Self Insurance? Best Suited for ___-_______ loss severity?
Term
 high
Definition
 Characteristics of Various Risk Financing Plans: Guaranteed Cost Insurance? Best Suited for ___ loss severity?
Term
 high
Definition
 Characteristics of Various Risk Financing Plans: Insurance Derivatives/Securities? Best Suited for ___ loss severity?
Term
 low to medium
Definition
 Characteristics of Various Risk Financing Plans: Large Deductible plans? Best Suited for ___ -_______loss severity?
Term
 low to medium
Definition
 Characteristics of Various Risk Financing Plans: Retro-Rated Plans? Best Suited for ___- ________loss severity?
Term
 low to medium
Definition
 Characteristics of Various Risk Financing Plans: Captives? Best Suited for ___- ________loss severity?
Term
 none
Definition
 Characteristics of Various Risk Financing Plans: Informal Retention- Degree of Risk Transfer?
Term
 none
Definition
 Characteristics of Various Risk Financing Plans: Self-Insurnace- Degree of Risk Transfer?
Term
 High
Definition
 Characteristics of Various Risk Financing Plans: Guaranteed Cost Insurance- Degree of Risk Transfer?
Term
 High
Definition
 Characteristics of Various Risk Financing Plans: Insurance Derivatives/Securities- Degree of Risk Transfer?
Term
 varies
Definition
 Characteristics of Various Risk Financing Plans: Large Deductible Plans- Degree of Risk Transfer?
Term
 varies
Definition
 Characteristics of Various Risk Financing Plans: Retro-Rated Plans- Degree of Risk Transfer?
Term
 varies
Definition
 Characteristics of Various Risk Financing Plans: Captives- Degree of Risk Transfer?
Term
 low
Definition
 Characteristics of Various Risk Financing Plans: Informal Retention- Degree of Planning Required?
Term
 moderate
Definition
 Characteristics of Various Risk Financing Plans: Self Insurance- Degree of Planning Required?
Term
 moderate
Definition
 Characteristics of Various Risk Financing Plans: Guaranteed Cost Insurance- Degree of Planning Required?
Term
 very high
Definition
 Characteristics of Various Risk Financing Plans: Insurance Derivatives/Securities- Degree of Planning Required?
Term
 moderate
Definition
 Characteristics of Various Risk Financing Plans: Large Deductible Plans- Degree of Planning Required?
Term
 moderate
Definition
 Characteristics of Various Risk Financing Plans: Retro-Rated Plans- Degree of Planning Required?
Term
 high
Definition
 Characteristics of Various Risk Financing Plans: Captives- Degree of Planning Required?
Term
 retention
Definition
 Characteristics of Various Risk Financing Plans: Type of Plan: ________? informal retention self insurance
Term
 Transfer
Definition
 Characteristics of Various Risk Financing Plans: Type of Plan: _______? Guaranteed Cost Insurance Insurance Derivatives/Securities
Term
 Hybrid
Definition
 Characteristics of Various Risk Financing Plans: Type of Plan: _______? Large Deductible Plans Retro-Rated Plans Captives
Term
 self
Definition
 ___________ Insurance: Organization identifies loss exposures, decides to retain them, and formulates a plan to pay for and handle its retianed losses?
Term
 self
Definition
 ________ Insurance: Generally used in relation to losses arising from hazard risk
Term
 Self
Definition
 _________ Insurance: Best suited for losses that are fairly predictable, such as losses with low frequency and low severity?
Term
 self
Definition
 ________ Insurance: Particularly well-suited for losses that are paid out long after they occur, providing a cash flow benefit to teh firm that retians them?
Term
 True
Definition
 T/F? Self insurance can be both funded and unfunded?
Term
 Self
Definition
 ______ Insurance: Organization keeps records of its losses and has a formal system to pay for them Firms that use this type of insurance must obtain certain services that an insurance company normally provides, adn othen saves expenses when these services are outsourced
Term
 Unfunded
Definition
 _______ Self Insurance: Losses paid out of cash flow and/or available current assets?
Term
 Funded
Definition
 ________ self insurance: organization establishes internal fund to pay losses
Term
 Informal
Definition
 __________ Retention: organization pays for losses with its cash flow and/or current assets
Term
 unfunded
Definition
 Informal retention is an _________ loss retention plan?
Term
Definition
 Informal Retention has an advantage of low ________ costs?
Term
 Informal
Definition
 __________ Retention: Usually applied to low-severity losses that are easily absorbed by organizations cash flow and current assets Total losses retained should be minimal or fairly predictable so that they do not severly affect an organization's working capital or cash flow
Term
 Guaranteed Cost
Definition
 _____________ __________ Insurance: Amount of premium insured will pay for policy is guranteed, regardless of amount of losses that actually fall under the policy?
Term
 unpredictible
Definition
 Guaranteed cost insurance is a transfer plan, best suited for high-severity losses which are _______________(catastrophic)?
Term
 experience
Definition
 Guaranteed Cost Insurance: Premium is based on standard industry rates adjusted upward/downward based on an organization's past loss _______?
Term
 Guaranteed Cost
Definition
 _____________ __________ Insurance: Helps an organization to reduce rinancial uncertainty associated with its losses Stability or organization's earnings, net worth, and cash flow enchanced?
Term
 Guaranteed Cost
Definition
 ________ _________ Insurance: Tends to be mroe expensive than retaining losses and paying separately for the services than an insurance policy covers?
Term
 Insurer
Definition
 Guaranteed Cost Insurance: Premiums normally paid at the beginning of the policy period, so _________ benefits from cash flows?
Term
 Derivative
Definition
 Insurance ____________? Financial contract that derives its value from teh level of insurable losses that occur during a specific period
Term
 asset
Definition
 Insurance Derivative: Insurable losses are treated as an underlying _______?
Term
 Swaps Options
Definition
 What are the two major catagories of Insurance Derivatives?
Term
 securities
Definition
 Insurance ________: marketable insurance-linked secutities that are based on the cash flow that arises from teh transfer of insurable risks
Term
 Insurance security
Definition
 A catastrophe Bond is an example of an __________ _________?
Term
 no
Definition
 Is the market well developed for both insurance derivatives and insurance securities?
Term
 expensive; planning
Definition
 Insurance Securities/Derivatives tend to be more ________ and require more extensive ________?
Term
 basis
Definition
 ________ risk: The amount recieved by an organization may not match actual losses?
Term
 basis risk
Definition
 What is the significant disadvantage of insurance derivatives/securites?
Term
 custom-tailor
Definition
 Derivatives/Securities Basis risk can be eliminated if an organization can _______-________ a product for its risk-profile?
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