RMI 2101 LATEST 2026 TEST PAPER QUESTIONS AND
ANSWERS RATED A+
✔✔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
- Peace of mind
- Safety
- Enhanced credit worthiness
✔✔Indemnify - ✔✔Compensate
✔✔Fully Indemnified - ✔✔Place the insured in the same position financially after the
loss as they were prior to the loss.
✔✔Forms of Indemnification (4) - ✔✔1. Cash; payed after the loss occurs and
determined after the loss occurs.
2. Cash; payed after the loss occurs and determined before the loss occurs.
3. Repair or replace an asset
4. Provide services as a way to indemnify
✔✔General requirements of insurable risk (2) - ✔✔1. Supply of insurance
2. Demand for insurance
✔✔A risk is insurable if... - ✔✔PI is less than or equal to Pmax
✔✔Why might PI be greater than Pmax - ✔✔1. PI is too high
2. P Max is too low
✔✔PI is too high (3) - ✔✔1. P* is high
2. Risk Charge is high
3. Administrative costs are high
✔✔Pmax is too low - ✔✔Individuals underestimate the frequency and/or severity of the
loss. (NFIP)
ANSWERS RATED A+
✔✔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
- Peace of mind
- Safety
- Enhanced credit worthiness
✔✔Indemnify - ✔✔Compensate
✔✔Fully Indemnified - ✔✔Place the insured in the same position financially after the
loss as they were prior to the loss.
✔✔Forms of Indemnification (4) - ✔✔1. Cash; payed after the loss occurs and
determined after the loss occurs.
2. Cash; payed after the loss occurs and determined before the loss occurs.
3. Repair or replace an asset
4. Provide services as a way to indemnify
✔✔General requirements of insurable risk (2) - ✔✔1. Supply of insurance
2. Demand for insurance
✔✔A risk is insurable if... - ✔✔PI is less than or equal to Pmax
✔✔Why might PI be greater than Pmax - ✔✔1. PI is too high
2. P Max is too low
✔✔PI is too high (3) - ✔✔1. P* is high
2. Risk Charge is high
3. Administrative costs are high
✔✔Pmax is too low - ✔✔Individuals underestimate the frequency and/or severity of the
loss. (NFIP)
