RMI 2101 CORE EXAM 2026 SET QUESTIONS AND
ANSWERS RATED A+
✔✔E.g. Which risk management strategies are being used when you purchase
insurance with a deductible? (2) - ✔✔1. Risk Transfer (Insurance Policy)
2. Active Retention (Deductible)
✔✔Types of retention (4) - ✔✔1. Active
2. Passive
3. Funded
4. Unfunded
✔✔Active Retention - ✔✔Knowingly retaining funds for use when a loss occurs.
✔✔Passive Retention - ✔✔Retain the exposure to loss, may be unaware.
✔✔Funded - ✔✔A firm sets aside funds every period to pay for losses.
✔✔Unfunded - ✔✔A firm does not have a separate fund to pay for losses.
✔✔Self-Insurance - ✔✔Retention program for firms with many loss exposures and
potentially large losses. (Actively funded retention program)
✔✔Common types of Self-Insurance programs (2) - ✔✔1. Health Insurance
2. Workers Compensation
✔✔Advantages of Self-Insurance compared to Market Insurance (4) - ✔✔1. Potentially
less expensive.
2. Flexibility in design of their insurance programs.
3. Money can be invested internally at a higher rate of return (ROR) than is being
credited by the insurer.
4.Firms can retain the full benefits of successful loss prevention and loss reduction
programs.
✔✔Disadvantages of Self-Insurance compared to Market Insurance (3) - ✔✔1.
Possibility of a catastrophic loss.
2. Firms have to perform many of the administrative activities previously performed by
the Insurance company.
3. Potential employee PR problems.
✔✔Captive Insurer - ✔✔A wholly owned subsidiary of a parent company whose primary
purpose is to insure the risk of the parent company/companies.
✔✔Types of Captives (2) - ✔✔1. Single Parent
, 2. Association captive
✔✔Single Parent (Captive) - ✔✔One company insures their own risk.
✔✔Association (Captive) - ✔✔Typically formed for non profit issues. (Municipality,
hospitals)
✔✔Advantages of a captive (4) - ✔✔1. Helps with hard markets.
2. Income tax and regulatory advantages (VT, Bermuda, Cayman Islands)
3. Provides access to reinsurance markets.
4. Captives can provide strong incentives to lower the cost of risk.
✔✔Risk Retention Groups - ✔✔Provides insurance and risk control services that stress
heavy investment in loss prevention and loss reduction.
✔✔Loss Matrix - ✔✔Indicates possible dollar values or expenditure associated with
each combination of risk management alternatives and future states of the world.
✔✔Possible Risk Management Options (6) - ✔✔1. Retention
2. Retention+Safety
3. Full Insurance
4. Full Insurance+Safety
5. Partial Insurance
6. Deductible Insurance
✔✔Ranking Worry Value - ✔✔WVr>WVpi>WVrs>WVdi>WVfi
✔✔Worry Value increases when...(5) - ✔✔1. Maximum possible loss increases.
2. Variability in loss increases.
3. Level of confidence in estimate of P* decreases.
4. The financial strength of the individual/ firm decreases.
5. Level of insurance coverage decreases.
✔✔Worry Value= - ✔✔Pmax-P*
✔✔Homogeneous Risk Pool - ✔✔When a risk pool contains exposure units with the
same risk profiles. (Income transfer from those who do not have a loss to those who do
have a loss)
✔✔Heterogeneous Risk Pool - ✔✔When the exposure units in a risk pool do not have
similar risk profiles. (Risk transfer between those who do not have a loss and those who
do have a loss as well as between low risk and high risk individuals)
✔✔Which commodities are being purchased with insurance? - ✔✔- Risk transfer
- Certainty
ANSWERS RATED A+
✔✔E.g. Which risk management strategies are being used when you purchase
insurance with a deductible? (2) - ✔✔1. Risk Transfer (Insurance Policy)
2. Active Retention (Deductible)
✔✔Types of retention (4) - ✔✔1. Active
2. Passive
3. Funded
4. Unfunded
✔✔Active Retention - ✔✔Knowingly retaining funds for use when a loss occurs.
✔✔Passive Retention - ✔✔Retain the exposure to loss, may be unaware.
✔✔Funded - ✔✔A firm sets aside funds every period to pay for losses.
✔✔Unfunded - ✔✔A firm does not have a separate fund to pay for losses.
✔✔Self-Insurance - ✔✔Retention program for firms with many loss exposures and
potentially large losses. (Actively funded retention program)
✔✔Common types of Self-Insurance programs (2) - ✔✔1. Health Insurance
2. Workers Compensation
✔✔Advantages of Self-Insurance compared to Market Insurance (4) - ✔✔1. Potentially
less expensive.
2. Flexibility in design of their insurance programs.
3. Money can be invested internally at a higher rate of return (ROR) than is being
credited by the insurer.
4.Firms can retain the full benefits of successful loss prevention and loss reduction
programs.
✔✔Disadvantages of Self-Insurance compared to Market Insurance (3) - ✔✔1.
Possibility of a catastrophic loss.
2. Firms have to perform many of the administrative activities previously performed by
the Insurance company.
3. Potential employee PR problems.
✔✔Captive Insurer - ✔✔A wholly owned subsidiary of a parent company whose primary
purpose is to insure the risk of the parent company/companies.
✔✔Types of Captives (2) - ✔✔1. Single Parent
, 2. Association captive
✔✔Single Parent (Captive) - ✔✔One company insures their own risk.
✔✔Association (Captive) - ✔✔Typically formed for non profit issues. (Municipality,
hospitals)
✔✔Advantages of a captive (4) - ✔✔1. Helps with hard markets.
2. Income tax and regulatory advantages (VT, Bermuda, Cayman Islands)
3. Provides access to reinsurance markets.
4. Captives can provide strong incentives to lower the cost of risk.
✔✔Risk Retention Groups - ✔✔Provides insurance and risk control services that stress
heavy investment in loss prevention and loss reduction.
✔✔Loss Matrix - ✔✔Indicates possible dollar values or expenditure associated with
each combination of risk management alternatives and future states of the world.
✔✔Possible Risk Management Options (6) - ✔✔1. Retention
2. Retention+Safety
3. Full Insurance
4. Full Insurance+Safety
5. Partial Insurance
6. Deductible Insurance
✔✔Ranking Worry Value - ✔✔WVr>WVpi>WVrs>WVdi>WVfi
✔✔Worry Value increases when...(5) - ✔✔1. Maximum possible loss increases.
2. Variability in loss increases.
3. Level of confidence in estimate of P* decreases.
4. The financial strength of the individual/ firm decreases.
5. Level of insurance coverage decreases.
✔✔Worry Value= - ✔✔Pmax-P*
✔✔Homogeneous Risk Pool - ✔✔When a risk pool contains exposure units with the
same risk profiles. (Income transfer from those who do not have a loss to those who do
have a loss)
✔✔Heterogeneous Risk Pool - ✔✔When the exposure units in a risk pool do not have
similar risk profiles. (Risk transfer between those who do not have a loss and those who
do have a loss as well as between low risk and high risk individuals)
✔✔Which commodities are being purchased with insurance? - ✔✔- Risk transfer
- Certainty
