MGRADES
RMI - Final Exam UPDATED ACTUAL
Exam Questions and CORRECT Answers
Active Retention - CORRECT ANSWER - A firm deliberately retains risk by setting aside
funds or absorbing losses (e.g., through a deductible).
Passive Retention - CORRECT ANSWER - Risks are retained due to ignorance,
indifference, or failure to identify the risk.
Duplication - CORRECT ANSWER - A risk control technique involving backing up or
replicating important processes or assets to reduce loss severity.
Risk Pooling - CORRECT ANSWER - The spreading of losses incurred by a few over a
large group to reduce individual risk.
Risk Financing - CORRECT ANSWER - Strategies used to pay for losses after they occur,
such as insurance or self-insurance.
Insurance-Linked Security - CORRECT ANSWER - A financial instrument sold to
investors where repayment is tied to insurance loss events (e.g., catastrophe bonds).
Fundamental Risk - CORRECT ANSWER - Risks that affect a large segment of society or
the economy (e.g., natural disasters, pandemics).
Value at Risk (VaR) - CORRECT ANSWER - A statistical measure of the potential loss in
value of a portfolio over a defined period for a given confidence interval.
Combined Ratio - CORRECT ANSWER - A measure of underwriting profitability: (loss
ratio + expense ratio). A ratio under 100% indicates profitability.
, MGRADES
Pure Risk - CORRECT ANSWER - A risk that involves only the possibility of loss or no
loss (e.g., fire, theft).
Speculative Risk - CORRECT ANSWER - A risk that offers a chance of gain as well as
loss (e.g., investing in stocks).
Retrocession - CORRECT ANSWER - Reinsurance for reinsurers; a reinsurer transfers
risk to another reinsurer.
RRG (Risk Retention Group) - CORRECT ANSWER - A liability insurance company
owned by its members, authorized under the federal Liability Risk Retention Act.
IMSI (Insurance Market Stability Initiative) - CORRECT ANSWER - Programs or
policies intended to stabilize or support the insurance market during times of disruption.
Fortuitous Loss - CORRECT ANSWER - A loss that is accidental, unexpected, and
unforeseen.
Unforeseen Loss - CORRECT ANSWER - A loss not anticipated in advance, typically
beyond the control of the insured.
Securitization of Risk - CORRECT ANSWER - The transfer of insurance risk to the
capital markets through financial instruments like catastrophe bonds.
Moral Hazard - CORRECT ANSWER - Arises when an insured behaves recklessly
because they know they're covered.
Morale Hazard - CORRECT ANSWER - Indifference to risk because of the existence of
insurance (e.g., carelessness).
RMI - Final Exam UPDATED ACTUAL
Exam Questions and CORRECT Answers
Active Retention - CORRECT ANSWER - A firm deliberately retains risk by setting aside
funds or absorbing losses (e.g., through a deductible).
Passive Retention - CORRECT ANSWER - Risks are retained due to ignorance,
indifference, or failure to identify the risk.
Duplication - CORRECT ANSWER - A risk control technique involving backing up or
replicating important processes or assets to reduce loss severity.
Risk Pooling - CORRECT ANSWER - The spreading of losses incurred by a few over a
large group to reduce individual risk.
Risk Financing - CORRECT ANSWER - Strategies used to pay for losses after they occur,
such as insurance or self-insurance.
Insurance-Linked Security - CORRECT ANSWER - A financial instrument sold to
investors where repayment is tied to insurance loss events (e.g., catastrophe bonds).
Fundamental Risk - CORRECT ANSWER - Risks that affect a large segment of society or
the economy (e.g., natural disasters, pandemics).
Value at Risk (VaR) - CORRECT ANSWER - A statistical measure of the potential loss in
value of a portfolio over a defined period for a given confidence interval.
Combined Ratio - CORRECT ANSWER - A measure of underwriting profitability: (loss
ratio + expense ratio). A ratio under 100% indicates profitability.
, MGRADES
Pure Risk - CORRECT ANSWER - A risk that involves only the possibility of loss or no
loss (e.g., fire, theft).
Speculative Risk - CORRECT ANSWER - A risk that offers a chance of gain as well as
loss (e.g., investing in stocks).
Retrocession - CORRECT ANSWER - Reinsurance for reinsurers; a reinsurer transfers
risk to another reinsurer.
RRG (Risk Retention Group) - CORRECT ANSWER - A liability insurance company
owned by its members, authorized under the federal Liability Risk Retention Act.
IMSI (Insurance Market Stability Initiative) - CORRECT ANSWER - Programs or
policies intended to stabilize or support the insurance market during times of disruption.
Fortuitous Loss - CORRECT ANSWER - A loss that is accidental, unexpected, and
unforeseen.
Unforeseen Loss - CORRECT ANSWER - A loss not anticipated in advance, typically
beyond the control of the insured.
Securitization of Risk - CORRECT ANSWER - The transfer of insurance risk to the
capital markets through financial instruments like catastrophe bonds.
Moral Hazard - CORRECT ANSWER - Arises when an insured behaves recklessly
because they know they're covered.
Morale Hazard - CORRECT ANSWER - Indifference to risk because of the existence of
insurance (e.g., carelessness).
