Section 3 RMI Midterm Exam 1 Questions
With Complete Solutions
1) Risk management is concerned with Correct
Answers A) the identification and treatment of loss
exposures.
10) The worst loss that is likely to happen is
referred to as the Correct Answers B) probable
maximum loss.
11) All of the following statements about avoidance
are true EXCEPT Correct Answers D) It can be
used for any loss exposure facing a firm.
12) Abandoning an existing loss exposure is an
example of Correct Answers A) avoidance.
13) Which of the following conditions is (are)
appropriate for using retention? Correct Answers
B) II only
14) Which of the following statements regarding
the use of retention is (are) true?I. Retention is
best used for loss exposures that have a low
frequency and a high severity.II. A financially
strong firm can have a higher retention level than a
firm whose financialposition is weak. Correct
Answers B) II only
, 15) Which of the following statements about the
use of a captive insurance company by a
parentfirm is true? Correct Answers C) The
captive may be used to insure loss exposures that
the parent firm finds it difficult toinsure with
private insurers.
16) Which of the following statements about self-
insurance is (are) true?I. It is a form of planned
retention.II. State law usually prohibits its use for
workers compensation. Correct Answers A) I only
17) All of the following are potential advantages of
retention EXCE Correct Answers D) protection
from catastrophic losses.
18) A restaurant owner leased a meeting room at
the restaurant to a second party. The
leasespecified that the second party, not the
restaurant owner, would be responsible for any
liabilityarising out of the use of the meeting room,
and that the restaurant owner would be
"heldharmless" for any damages. The restaurant
owner's use of the hold-harmless agreement in
thelease is an example of Correct Answers D)
noninsurance transfer.
19) All of the following are disadvantages of
noninsurance transfers EXCEPT Correct Answers
With Complete Solutions
1) Risk management is concerned with Correct
Answers A) the identification and treatment of loss
exposures.
10) The worst loss that is likely to happen is
referred to as the Correct Answers B) probable
maximum loss.
11) All of the following statements about avoidance
are true EXCEPT Correct Answers D) It can be
used for any loss exposure facing a firm.
12) Abandoning an existing loss exposure is an
example of Correct Answers A) avoidance.
13) Which of the following conditions is (are)
appropriate for using retention? Correct Answers
B) II only
14) Which of the following statements regarding
the use of retention is (are) true?I. Retention is
best used for loss exposures that have a low
frequency and a high severity.II. A financially
strong firm can have a higher retention level than a
firm whose financialposition is weak. Correct
Answers B) II only
, 15) Which of the following statements about the
use of a captive insurance company by a
parentfirm is true? Correct Answers C) The
captive may be used to insure loss exposures that
the parent firm finds it difficult toinsure with
private insurers.
16) Which of the following statements about self-
insurance is (are) true?I. It is a form of planned
retention.II. State law usually prohibits its use for
workers compensation. Correct Answers A) I only
17) All of the following are potential advantages of
retention EXCE Correct Answers D) protection
from catastrophic losses.
18) A restaurant owner leased a meeting room at
the restaurant to a second party. The
leasespecified that the second party, not the
restaurant owner, would be responsible for any
liabilityarising out of the use of the meeting room,
and that the restaurant owner would be
"heldharmless" for any damages. The restaurant
owner's use of the hold-harmless agreement in
thelease is an example of Correct Answers D)
noninsurance transfer.
19) All of the following are disadvantages of
noninsurance transfers EXCEPT Correct Answers
