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ARM 401 (Associate in Risk Management) Exam||
COMPLETE EXAM WITH QUESTIONS AND
ANSWERS||VERIFIED EXAM!!!
Global Reinsurance Company (GRC) is a European
reinsurer that accepts risks from insurers around the
world. Financial managers at GRC would like to estimate
profitability for next year for their five primary risk areas:
flood risk in Europe, earthquake risk in Japan, hurricane
risk for the Gulf Coast of the United States, California
earthquake risk, and typhoon risk in Indian Ocean nations.
The financial managers entered event probabilities, loss
payment estimates, retained loss levels, premiums to be
received, and other data into a computer. Then the
computer was programmed to select values for each
variable and based on the data, to calculate net income.
The computer was programmed to repeat the calculation
500,000 times. The output from the analysis was a
distribution showing the probability of obtaining various
profit levels. The procedure GRC used is called -
ANSWER-Computer simulation
In a normal distribution, fewer than 5% of outcomes are -
ANSWER-Outside two standard deviations above or
below the mean.
Magruder Company would like to estimate the number of
workers compensation claims to expect next year.
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Magruder's risk manager ran a regression analysis in
which the number of workers compensation claims was
the dependent variable and the number of payroll hours
worked (in thousands) was the independent variable. The
y-intercept from the regression was 3.8. The slope
coefficient was 1.4. The risk manager believes that next
year Magruder workers will work 80,000 payroll hours.
Based on this information, approximately how many
workers compensation claims should the risk manager
expect next year? - ANSWER-116 (y = mx + b, payroll is
the independent x axis and claims is the dependent y axis.
y = 1.4 (80) + 3.8 = 115.8, rounded to 116 claims next
year)
A main difference between decision trees and event trees
is - ANSWER-That event trees analyze the consequences
of accidental events rather than decisions
The theoretical probability of a head on a coin toss is 50%.
Based on the law of large numbers, which one of the
following is the number of coin tosses most likely to result
in an empirical frequency of 50% receiving a head on a
coin toss? - ANSWER-100 (As the number of samples
increase, the empirical frequency of a head on a coin toss
will move closer and closer to 50%. Of the choices
provided, the number of coin tosses most likely to result in
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an empirical frequency of 50% receiving a head on a coin
toss is 100.)
Which one of the following statements is true if earnings at
risk are $200,000 with 90% confidence? - ANSWER-
Earnings at risk are projected to be less than $200,000
10% of the time.
If 95.44% of all outcomes are within two standard
deviations above and below the mean and 2.15% of all
outcomes are between two and three standard deviations
above and 2.15% of all outcomes are between two and
three standard below the mean, the percentage of all
outcomes that lie beyond three standard deviations from
(above and below) the mean is - ANSWER-26 (100% -
95.44% - 2.15% - 2.15% =.26%; .26% of all outcomes lie
outside three standard deviations above and below the
mean.)
Which one of the following is considered the most effective
loss control method against potential losses from
computer hackers? - ANSWER-Computer passwords
Mike is the new risk manager for ABC Web Hosting, LLC.
ABC develops and hosts Web sites for many different
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organizations. Mike took over the risk manager position
from Tom, who was let go for poor performance.
XYZ Retailer was one customer for whom ABC built a Web
site. Recently, XYZ Retailer accused ABC of not building a
secure site. As a result of the site not being secure, XYZ
Retailer claims that its sales have decreased dramatically.
XYZ also contends that the personal information of many
of its customers was compromised and, now, XYZ is being
sued by a group of its customers for not doing a better job
of protecting their personal information. Now XYZ Retailer
is suing ABC Web Hosting, LLC.
Two noninsurance risk transfer methods ABC could have
used as a means of risk financing are - ANSWER-. A hold-
harmless agreement and a liability disclaimer
Third parties in a cyber insurance transaction are typically
- ANSWER-Customers of the first party.
As part of its assessment of its cyber risk, an organization
should consider whether there are any intangible property
exposures. Which one of the following would best be
classified as an intangible property loss? - ANSWER-The
computer system is hacked and data including credit card
numbers are stolen.
ARM 401 (Associate in Risk Management) Exam||
COMPLETE EXAM WITH QUESTIONS AND
ANSWERS||VERIFIED EXAM!!!
Global Reinsurance Company (GRC) is a European
reinsurer that accepts risks from insurers around the
world. Financial managers at GRC would like to estimate
profitability for next year for their five primary risk areas:
flood risk in Europe, earthquake risk in Japan, hurricane
risk for the Gulf Coast of the United States, California
earthquake risk, and typhoon risk in Indian Ocean nations.
The financial managers entered event probabilities, loss
payment estimates, retained loss levels, premiums to be
received, and other data into a computer. Then the
computer was programmed to select values for each
variable and based on the data, to calculate net income.
The computer was programmed to repeat the calculation
500,000 times. The output from the analysis was a
distribution showing the probability of obtaining various
profit levels. The procedure GRC used is called -
ANSWER-Computer simulation
In a normal distribution, fewer than 5% of outcomes are -
ANSWER-Outside two standard deviations above or
below the mean.
Magruder Company would like to estimate the number of
workers compensation claims to expect next year.
,2|Page
Magruder's risk manager ran a regression analysis in
which the number of workers compensation claims was
the dependent variable and the number of payroll hours
worked (in thousands) was the independent variable. The
y-intercept from the regression was 3.8. The slope
coefficient was 1.4. The risk manager believes that next
year Magruder workers will work 80,000 payroll hours.
Based on this information, approximately how many
workers compensation claims should the risk manager
expect next year? - ANSWER-116 (y = mx + b, payroll is
the independent x axis and claims is the dependent y axis.
y = 1.4 (80) + 3.8 = 115.8, rounded to 116 claims next
year)
A main difference between decision trees and event trees
is - ANSWER-That event trees analyze the consequences
of accidental events rather than decisions
The theoretical probability of a head on a coin toss is 50%.
Based on the law of large numbers, which one of the
following is the number of coin tosses most likely to result
in an empirical frequency of 50% receiving a head on a
coin toss? - ANSWER-100 (As the number of samples
increase, the empirical frequency of a head on a coin toss
will move closer and closer to 50%. Of the choices
provided, the number of coin tosses most likely to result in
,3|Page
an empirical frequency of 50% receiving a head on a coin
toss is 100.)
Which one of the following statements is true if earnings at
risk are $200,000 with 90% confidence? - ANSWER-
Earnings at risk are projected to be less than $200,000
10% of the time.
If 95.44% of all outcomes are within two standard
deviations above and below the mean and 2.15% of all
outcomes are between two and three standard deviations
above and 2.15% of all outcomes are between two and
three standard below the mean, the percentage of all
outcomes that lie beyond three standard deviations from
(above and below) the mean is - ANSWER-26 (100% -
95.44% - 2.15% - 2.15% =.26%; .26% of all outcomes lie
outside three standard deviations above and below the
mean.)
Which one of the following is considered the most effective
loss control method against potential losses from
computer hackers? - ANSWER-Computer passwords
Mike is the new risk manager for ABC Web Hosting, LLC.
ABC develops and hosts Web sites for many different
, 4|Page
organizations. Mike took over the risk manager position
from Tom, who was let go for poor performance.
XYZ Retailer was one customer for whom ABC built a Web
site. Recently, XYZ Retailer accused ABC of not building a
secure site. As a result of the site not being secure, XYZ
Retailer claims that its sales have decreased dramatically.
XYZ also contends that the personal information of many
of its customers was compromised and, now, XYZ is being
sued by a group of its customers for not doing a better job
of protecting their personal information. Now XYZ Retailer
is suing ABC Web Hosting, LLC.
Two noninsurance risk transfer methods ABC could have
used as a means of risk financing are - ANSWER-. A hold-
harmless agreement and a liability disclaimer
Third parties in a cyber insurance transaction are typically
- ANSWER-Customers of the first party.
As part of its assessment of its cyber risk, an organization
should consider whether there are any intangible property
exposures. Which one of the following would best be
classified as an intangible property loss? - ANSWER-The
computer system is hacked and data including credit card
numbers are stolen.
