CPCU Exam 1
Probability - Answer-The likelihood that an outcome or event will occur
Risk - Answer-Uncertainty about outcomes, with the possibility that some outcomes can be negative
Pure Risk - Answer-A chance of loss or no loss, but no chance of gain
Speculative Risk - Answer-A chance of loss, no loss, or gain
Credit Risk - Answer-The risk that customers or other creditors will fail to make promised payments as
they come due
Subjective Risk - Answer-The perceived amount of risk based on an individual's or organization's
opinions
Diversifiable Risk - Answer-A risk that affects only some individuals, businesses, or small groups
Systemic Risk - Answer-The potential for a major disruption in the function of an entire market or
financial system
Market Risk - Answer-Uncertainty about an investment's future value because of potential changes in
the market for that type of investment
,Liquidity Risk - Answer-The risk that an asset cannot be sold on short notice without incurring a loss
Risk Source (ISO 31000) - Answer-Element which alone or in combination has the intrinsic potential to
give rise to risk
Four Quadrants of Risk - Answer-- Hazard Risk
- Operational Risk
- Financial Risk
- Strategic Risk
Hazard Risk - Answer-Arises from property, liability or personnel loss exposures
Operational Risk - Answer-Arises from people, processes, systems, or controls
Financial Risk - Answer-Arises from the effect of market forces on financial assets or liabilities
Strategic Risk - Answer-Arises from trends in the economy and society
Residual Uncertainty - Answer-Level of risk remaining after an individual or organization implements
their risk management plans
Risk Management - Answer-The process of making and implementing decisions that will minimize the
adverse effects of accidental losses on an organization
Loss Exposure - Answer-Any condition or situation that presents a possibility of loss, whether or not an
actual loss occurs
, 3 Elements of Loss Exposure - Answer-- An asset exposed to loss
- Cause of loss (peril)
- Financial consequences of that loss
Hazard - Answer-A condition that increases the frequency or severity of a loss
Moral Hazard - Answer-A condition that increases the likelihood that a personal intentionally cause or
exaggerate a loss
Morale Hazard - Answer-A condition of carelessness or indifference that increases the frequency or
severity of loss
Physical Hazard - Answer-A tangible characteristic of property, persons, or operations that tends to
increase the frequency or severity of loss
Legal Hazard - Answer-A condition of the legal environment that increases loss frequency or severity
Property Loss Exposure - Answer-A condition that presents the possibility that a person or an
organization will sustain a loss resulting from damage (including destruction, taking, or loss of use) to
property in which that person or organization has a financial interest
Tangible Property - Answer-Property that has a physical form
Real Property - Answer-Tangible property consisting of land, all structures permanently attached to the
land, and whatever is growing on the land
Personal Property - Answer-All tangible or intangible property that is not real property
Probability - Answer-The likelihood that an outcome or event will occur
Risk - Answer-Uncertainty about outcomes, with the possibility that some outcomes can be negative
Pure Risk - Answer-A chance of loss or no loss, but no chance of gain
Speculative Risk - Answer-A chance of loss, no loss, or gain
Credit Risk - Answer-The risk that customers or other creditors will fail to make promised payments as
they come due
Subjective Risk - Answer-The perceived amount of risk based on an individual's or organization's
opinions
Diversifiable Risk - Answer-A risk that affects only some individuals, businesses, or small groups
Systemic Risk - Answer-The potential for a major disruption in the function of an entire market or
financial system
Market Risk - Answer-Uncertainty about an investment's future value because of potential changes in
the market for that type of investment
,Liquidity Risk - Answer-The risk that an asset cannot be sold on short notice without incurring a loss
Risk Source (ISO 31000) - Answer-Element which alone or in combination has the intrinsic potential to
give rise to risk
Four Quadrants of Risk - Answer-- Hazard Risk
- Operational Risk
- Financial Risk
- Strategic Risk
Hazard Risk - Answer-Arises from property, liability or personnel loss exposures
Operational Risk - Answer-Arises from people, processes, systems, or controls
Financial Risk - Answer-Arises from the effect of market forces on financial assets or liabilities
Strategic Risk - Answer-Arises from trends in the economy and society
Residual Uncertainty - Answer-Level of risk remaining after an individual or organization implements
their risk management plans
Risk Management - Answer-The process of making and implementing decisions that will minimize the
adverse effects of accidental losses on an organization
Loss Exposure - Answer-Any condition or situation that presents a possibility of loss, whether or not an
actual loss occurs
, 3 Elements of Loss Exposure - Answer-- An asset exposed to loss
- Cause of loss (peril)
- Financial consequences of that loss
Hazard - Answer-A condition that increases the frequency or severity of a loss
Moral Hazard - Answer-A condition that increases the likelihood that a personal intentionally cause or
exaggerate a loss
Morale Hazard - Answer-A condition of carelessness or indifference that increases the frequency or
severity of loss
Physical Hazard - Answer-A tangible characteristic of property, persons, or operations that tends to
increase the frequency or severity of loss
Legal Hazard - Answer-A condition of the legal environment that increases loss frequency or severity
Property Loss Exposure - Answer-A condition that presents the possibility that a person or an
organization will sustain a loss resulting from damage (including destruction, taking, or loss of use) to
property in which that person or organization has a financial interest
Tangible Property - Answer-Property that has a physical form
Real Property - Answer-Tangible property consisting of land, all structures permanently attached to the
land, and whatever is growing on the land
Personal Property - Answer-All tangible or intangible property that is not real property
