ARM 402 UPDATED ACTUAL QUESTIONS AND
CORRECT ANSWERS
Question:
1. Facultative reinsurance
Answer:
Reinsurance of individual loss exposures in which the primary insurer chooses
which loss exposures to submit to the reinsurer, and the reinsurer can accept or
reject any loss exposures submitted.
- nonobligatory reinsurance.
Question:
2. Risk treatment
Answer:
The determination of the best way to address an identified risk.
- done AFTER the Risk Assesment
Question:
3. Residual risk
Answer:
The level of risk remaining after actions are taken to alter the level of risk.
Question:
4. Avoidance
Answer:
A risk control technique that involves ceasing or never undertaking an activity so
that the possibility of a future loss occurring from that activity is eliminated.
Question:
5. Loss prevention
Answer:
A risk control technique that reduces the frequency of a particular loss.
Question:
6. Loss reduction
Answer:
A risk control technique that reduces the severity of a particular loss.
,Question:
7. Risk transfer
Answer:
The shifting of risk from one individual or organization to another.
Question:
8. Retention
Answer:
A risk financing technique that involves assumption of risk in which gains and
losses are retained within the organization.
Question:
9. Risk Transfer Techniques
Answer:
1. Avoid
2. Modify
3. Transfer
4. Retain
5. Exploit
Question:
10. Avoid the risk
Answer:
Stopping or canceling the activity that would cause the risk. An organization may
exercise risk avoidance if a risk is deemed too high to take on in any form or
amount.
Question:
11. Modify the risk
Answer:
Increasing or decreasing an event's likelihood and/or consequences that will
result in positive or negative outcomes.
ex. for hazard risks, loss prevention actions (such as installing theft-prevention
systems) are taken to reduce overall loss frequency. And loss reduction actions
(such as installing sprinkler systems to reduce the severity of fires) are taken to
reduce the impact of risks.
, Question:
12. Transfer the risk
Answer:
Sharing the risk with, or moving it entirely to, another party.
Purchasing insurance is a prime example of risk transfer. Risk can also be
transferred by outsourcing a process to a contractor, who then takes on the risks
associated with that process.
Question:
13. Retain the risk
Answer:
Accepting and absorbing some or all of the consequences of the risk.
Risk retention is often used only after other treatment techniques have been
considered, and it's often used in conjunction with other techniques such as risk
modification and risk transfer. Typically, retention is used when the potential
negative consequences associated with it are low. In addition, any risk that is
retained should be carefully analyzed so that the organization fully understands
the extent of that risk. Organizations can also choose to retain more risk in order
to exploit an opportunity.
Question:
14. Exploit the risk
Answer:
Taking actions to maximize the expected gains of opportunities.
ex. an organization could modify the likelihood of an event to increase the
opportunity for financial gains. It could also share the opportunity with another
party that may be able to contribute additional resources, which could increase
the likelihood of generating more business. However, actions to exploit risks can
create more risks, which must then be identified, analyzed, and possibly treated.
Question:
15. The Prouty Approach
Answer:
analyzes a risk's loss likelihood and impact to determine a proper treatment.
believed that when a risk's likelihood and impact could be accurately estimated,
risk managers could use a matrix to determine which risk treatment method would
be best for the risk.
CORRECT ANSWERS
Question:
1. Facultative reinsurance
Answer:
Reinsurance of individual loss exposures in which the primary insurer chooses
which loss exposures to submit to the reinsurer, and the reinsurer can accept or
reject any loss exposures submitted.
- nonobligatory reinsurance.
Question:
2. Risk treatment
Answer:
The determination of the best way to address an identified risk.
- done AFTER the Risk Assesment
Question:
3. Residual risk
Answer:
The level of risk remaining after actions are taken to alter the level of risk.
Question:
4. Avoidance
Answer:
A risk control technique that involves ceasing or never undertaking an activity so
that the possibility of a future loss occurring from that activity is eliminated.
Question:
5. Loss prevention
Answer:
A risk control technique that reduces the frequency of a particular loss.
Question:
6. Loss reduction
Answer:
A risk control technique that reduces the severity of a particular loss.
,Question:
7. Risk transfer
Answer:
The shifting of risk from one individual or organization to another.
Question:
8. Retention
Answer:
A risk financing technique that involves assumption of risk in which gains and
losses are retained within the organization.
Question:
9. Risk Transfer Techniques
Answer:
1. Avoid
2. Modify
3. Transfer
4. Retain
5. Exploit
Question:
10. Avoid the risk
Answer:
Stopping or canceling the activity that would cause the risk. An organization may
exercise risk avoidance if a risk is deemed too high to take on in any form or
amount.
Question:
11. Modify the risk
Answer:
Increasing or decreasing an event's likelihood and/or consequences that will
result in positive or negative outcomes.
ex. for hazard risks, loss prevention actions (such as installing theft-prevention
systems) are taken to reduce overall loss frequency. And loss reduction actions
(such as installing sprinkler systems to reduce the severity of fires) are taken to
reduce the impact of risks.
, Question:
12. Transfer the risk
Answer:
Sharing the risk with, or moving it entirely to, another party.
Purchasing insurance is a prime example of risk transfer. Risk can also be
transferred by outsourcing a process to a contractor, who then takes on the risks
associated with that process.
Question:
13. Retain the risk
Answer:
Accepting and absorbing some or all of the consequences of the risk.
Risk retention is often used only after other treatment techniques have been
considered, and it's often used in conjunction with other techniques such as risk
modification and risk transfer. Typically, retention is used when the potential
negative consequences associated with it are low. In addition, any risk that is
retained should be carefully analyzed so that the organization fully understands
the extent of that risk. Organizations can also choose to retain more risk in order
to exploit an opportunity.
Question:
14. Exploit the risk
Answer:
Taking actions to maximize the expected gains of opportunities.
ex. an organization could modify the likelihood of an event to increase the
opportunity for financial gains. It could also share the opportunity with another
party that may be able to contribute additional resources, which could increase
the likelihood of generating more business. However, actions to exploit risks can
create more risks, which must then be identified, analyzed, and possibly treated.
Question:
15. The Prouty Approach
Answer:
analyzes a risk's loss likelihood and impact to determine a proper treatment.
believed that when a risk's likelihood and impact could be accurately estimated,
risk managers could use a matrix to determine which risk treatment method would
be best for the risk.
