CPCU 551 Practice Questions and
Correct Detailed Answers
Assignment 1:
Customer Mary gave dry cleaner Ike her fur coat so he could remove a large stain. Ike could not
eliminate the stain so he asked restoration specialist Peter to attempt to remove it.
The bailor in this scenario is:
a) Peter
b) Both Ike and Peter
c) Mary
d) Ike - Answer: ANSWER:
c) Mary
Assignment 1:
A self-supporting solid wall that prevents a fire from passing through or around it is a __________
a) Fire wall
b) Fire stop
c) Fire division
d) Hostile fire - Answer: ANSWER:
a) Fire wall
Assignment 1:
If the organization wishes to pre-fund for retained future losses, it must determine the present value
of the expected future losses. Calculating the present value of a future amount is known as _______
a) Depreciating
,b) Indexing
c) Compounding
d) Discounting - Answer: ANSWER:
d) Discounting
Assignment 1:
Which one of the following is the primary advantage of using retention as a risk financing measure to
help an organization meet its risk financing goals?
a) Complying with legal requirements
b) Managing the cost of risk
c) Paying for losses
d) Managing cash flow variability - Answer: ANSWER:
b) Managing the cost of risk
Assignment 1:
Which one of the following statements is true with regard to the selection of appropriate risk
financing measures?
a) It is typically more economical for an organization to retain rather than transfer loss exposures
directly related to its core operations.
b) Diversifying loss exposures tends to reduce the accuracy of loss estimates, and increases the
uncertainty regarding future losses.
c) An organization that undertakes extensive risk control measures is less likely to have the ability to
fund retention of its loss exposures.
d) The higher an organization's willingness to accept risk, the higher the likelihood that transfer will
be used to cover its loss exposures. - Answer: ANSWER:
,a) It is typically more economical for an organization to retain rather than transfer loss exposures
directly related to its core operations.
Assignment 1:
Captive insurers are _______
a) Prohibited from underwriting loss exposures not directly related to the captive's parent or
affiliates.
b) Typically domiciled in the same jurisdiction as the parent company.
c) Sometimes used to insure property loss exposures that are difficult to insure in the primary
market.
d) Not permitted to transfer the financial consequences of insured loss exposures to other insurers. -
Answer: ANSWER:
c) Sometimes used to insure property loss exposures that are difficult to insure in the primary
market.
Assignment 1:
Two of the most common applications of relative frequency measures in risk management are
injuries per person per hour in workers compensation and __________
a) Fires per 1,000 exposure units
b) Auto accidents per mile driven
c) Thefts per employee
d) Wind damage claims per season - Answer: ANSWER:
b) Auto accidents per mile driven
Assignment 1:
, Many businesses have refrigeration equipment, production equipment, steam boilers, and air
conditioning systems.
These are all examples of ___________
a) Boilers & Machinery
b) Personal Property
c) Property in Transit
d) Mobile Equipment - Answer: ANSWER:
a) Boilers & Machinery
Assignment 1:
Generally, funds used to pay for property losses are ____________
a) Partially paid when the losses occur with the balance paid over an extended period.
b) Delayed depending on when the adverse event occurred.
c) Disbursed relatively soon after the losses occur.
d) Often spread over several decades. - Answer: ANSWER:
c) Disbursed relatively soon after the losses occur.
Assignment 1:
Which one of the following statements is correct with respect to the timing dimension in the analysis
of loss exposures?
a) Money held in reserve to pay for a loss can earn interest until the actual payment is made.
b) Liability losses tend to be paid more quickly after an occurrence than property losses.
c) A delay between occurrence of a loss and its payment decreases uncertainty about the value of a
loss.
Correct Detailed Answers
Assignment 1:
Customer Mary gave dry cleaner Ike her fur coat so he could remove a large stain. Ike could not
eliminate the stain so he asked restoration specialist Peter to attempt to remove it.
The bailor in this scenario is:
a) Peter
b) Both Ike and Peter
c) Mary
d) Ike - Answer: ANSWER:
c) Mary
Assignment 1:
A self-supporting solid wall that prevents a fire from passing through or around it is a __________
a) Fire wall
b) Fire stop
c) Fire division
d) Hostile fire - Answer: ANSWER:
a) Fire wall
Assignment 1:
If the organization wishes to pre-fund for retained future losses, it must determine the present value
of the expected future losses. Calculating the present value of a future amount is known as _______
a) Depreciating
,b) Indexing
c) Compounding
d) Discounting - Answer: ANSWER:
d) Discounting
Assignment 1:
Which one of the following is the primary advantage of using retention as a risk financing measure to
help an organization meet its risk financing goals?
a) Complying with legal requirements
b) Managing the cost of risk
c) Paying for losses
d) Managing cash flow variability - Answer: ANSWER:
b) Managing the cost of risk
Assignment 1:
Which one of the following statements is true with regard to the selection of appropriate risk
financing measures?
a) It is typically more economical for an organization to retain rather than transfer loss exposures
directly related to its core operations.
b) Diversifying loss exposures tends to reduce the accuracy of loss estimates, and increases the
uncertainty regarding future losses.
c) An organization that undertakes extensive risk control measures is less likely to have the ability to
fund retention of its loss exposures.
d) The higher an organization's willingness to accept risk, the higher the likelihood that transfer will
be used to cover its loss exposures. - Answer: ANSWER:
,a) It is typically more economical for an organization to retain rather than transfer loss exposures
directly related to its core operations.
Assignment 1:
Captive insurers are _______
a) Prohibited from underwriting loss exposures not directly related to the captive's parent or
affiliates.
b) Typically domiciled in the same jurisdiction as the parent company.
c) Sometimes used to insure property loss exposures that are difficult to insure in the primary
market.
d) Not permitted to transfer the financial consequences of insured loss exposures to other insurers. -
Answer: ANSWER:
c) Sometimes used to insure property loss exposures that are difficult to insure in the primary
market.
Assignment 1:
Two of the most common applications of relative frequency measures in risk management are
injuries per person per hour in workers compensation and __________
a) Fires per 1,000 exposure units
b) Auto accidents per mile driven
c) Thefts per employee
d) Wind damage claims per season - Answer: ANSWER:
b) Auto accidents per mile driven
Assignment 1:
, Many businesses have refrigeration equipment, production equipment, steam boilers, and air
conditioning systems.
These are all examples of ___________
a) Boilers & Machinery
b) Personal Property
c) Property in Transit
d) Mobile Equipment - Answer: ANSWER:
a) Boilers & Machinery
Assignment 1:
Generally, funds used to pay for property losses are ____________
a) Partially paid when the losses occur with the balance paid over an extended period.
b) Delayed depending on when the adverse event occurred.
c) Disbursed relatively soon after the losses occur.
d) Often spread over several decades. - Answer: ANSWER:
c) Disbursed relatively soon after the losses occur.
Assignment 1:
Which one of the following statements is correct with respect to the timing dimension in the analysis
of loss exposures?
a) Money held in reserve to pay for a loss can earn interest until the actual payment is made.
b) Liability losses tend to be paid more quickly after an occurrence than property losses.
c) A delay between occurrence of a loss and its payment decreases uncertainty about the value of a
loss.
