RMIN 4000 UGA- Brown- exam 1 2026
Questions and Answers
definition of risk - Correct answer-A calculated possibility of a negative outcome
calculated possibility - Correct answer-probabilistic outcome, ranges from 0-1 (0-
100%)
negative outcome - Correct answer-loss, must be quantifiable ($)
frequency - Correct answer--"how often does a loss occur?"
-number of losses in a certain time period
-probability of a loss
Severity - Correct answer--"how much does it cost when a loss occurs?"
- dollar amount
how to calculate frequency - Correct answer-# of losses/# of exposures
how to calculate severity - Correct answer-total losses ($)/# number of losses
peril - Correct answer-cause of loss (ex: fire)
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
,hazard - Correct answer-condition that creates or increases frequency of a loss. 4
types: physical, moral, morale (attitudinal), legal
physical hazard - Correct answer-a physical condition that increases the frequency
or severity of loss
moral hazard - Correct answer-the presence of insurance changes the behavior of
the insured (ex: faking damages or exaggerating value of insured property)
Morale (attitudinal) hazard - Correct answer-carelessness or indifference to a loss
because of the existence of insurance, increases frequency and severity (ex: leaving
keys in car, ignoring limbs)
legal hazard - Correct answer-characteristics of the legal system or regulatory
environment that increase the frequency or severity of losses (ex: different juries in
different areas, diminution in value laws)
pure risk - Correct answer-loss or no loss (no gain), insurable (ex: fire or cancer)
speculative risk - Correct answer-A chance of loss, no loss, or gain. (ex: gambling
or investing), not always insurable
diversifiable risk - Correct answer--affects only small groups not whole economy
-can be reduced/eliminated thru diversification
-risks aren't correlated (fire, theft, collision)
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
, nondiversifiable risk - Correct answer--affects entire economy
-cannot be reduced thru diversififcation
-gov. assistance may be needed to insure
-risks are correlated (inflation, unemployment)
-ex: flood, earthquake
enterprise risk - Correct answer-encompasses all major risks faced by a business:
pure, speculative, operational, and financial
systemic risk - Correct answer--risk collapse of an entire system or entire market
due to a failure of a single entity or group of entities that can result in a breakdown
of the entire financial system
-instability in the financial system due to interdependency between the players and
the market
types of pure risks - Correct answer--personal
-property
-liability
-loss of business income
-cyber security
©COPYRIGHT 2025, ALL RIGHTS RESERVED 3
Questions and Answers
definition of risk - Correct answer-A calculated possibility of a negative outcome
calculated possibility - Correct answer-probabilistic outcome, ranges from 0-1 (0-
100%)
negative outcome - Correct answer-loss, must be quantifiable ($)
frequency - Correct answer--"how often does a loss occur?"
-number of losses in a certain time period
-probability of a loss
Severity - Correct answer--"how much does it cost when a loss occurs?"
- dollar amount
how to calculate frequency - Correct answer-# of losses/# of exposures
how to calculate severity - Correct answer-total losses ($)/# number of losses
peril - Correct answer-cause of loss (ex: fire)
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
,hazard - Correct answer-condition that creates or increases frequency of a loss. 4
types: physical, moral, morale (attitudinal), legal
physical hazard - Correct answer-a physical condition that increases the frequency
or severity of loss
moral hazard - Correct answer-the presence of insurance changes the behavior of
the insured (ex: faking damages or exaggerating value of insured property)
Morale (attitudinal) hazard - Correct answer-carelessness or indifference to a loss
because of the existence of insurance, increases frequency and severity (ex: leaving
keys in car, ignoring limbs)
legal hazard - Correct answer-characteristics of the legal system or regulatory
environment that increase the frequency or severity of losses (ex: different juries in
different areas, diminution in value laws)
pure risk - Correct answer-loss or no loss (no gain), insurable (ex: fire or cancer)
speculative risk - Correct answer-A chance of loss, no loss, or gain. (ex: gambling
or investing), not always insurable
diversifiable risk - Correct answer--affects only small groups not whole economy
-can be reduced/eliminated thru diversification
-risks aren't correlated (fire, theft, collision)
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
, nondiversifiable risk - Correct answer--affects entire economy
-cannot be reduced thru diversififcation
-gov. assistance may be needed to insure
-risks are correlated (inflation, unemployment)
-ex: flood, earthquake
enterprise risk - Correct answer-encompasses all major risks faced by a business:
pure, speculative, operational, and financial
systemic risk - Correct answer--risk collapse of an entire system or entire market
due to a failure of a single entity or group of entities that can result in a breakdown
of the entire financial system
-instability in the financial system due to interdependency between the players and
the market
types of pure risks - Correct answer--personal
-property
-liability
-loss of business income
-cyber security
©COPYRIGHT 2025, ALL RIGHTS RESERVED 3
