CAS Online Course 1
probability - correct answer - the likelihood that an outcome will occur
- is measurable
pure risk - correct answer chance of loss/no loss, no chance of gain
speculative risk - correct answer chance of loss, no loss, gain
credit risk - correct answer risk that customers fail to make promised payments when they are due
subjective risk - correct answer perceived amount of risk based on person's opinion
objective risk - correct answer measurable variation in uncertain outcomes based on facts
diversifiable risk - correct answer affects only some individuals, businesses, small groups
nondiversifiable risk - correct answer affects large segment of society at same time
systemic risk - correct answer - potential for major disruption of an entire market
- generally nondiversifiable
market risk - correct answer uncertainty about investment's future value due to market changes
liquidity risk - correct answer risk that an asset can't be sold on short notice
risk management - correct answer - process of making and implementing decisions that minimize
adverse effects of accidental losses
,- helps lower society's expected losses
- should promote overall goals (pre and post loss goals)
loss exposure - correct answer - condition or situation and presents probability of a loss
- has 3 elements: asset exposed to loss, cause of loss, financial consequences
hazard - correct answer condition that increases freq/severity of a loss
moral hazard - correct answer hazard that person will intentionally cause or exaggerate a loss
morale hazard (attitudinal) - correct answer hazard of carelessness, indifference
physical hazard - correct answer hazards of tangible characteristics (property, persons, operations)
legal hazard - correct answer hazard of the legal environment
property loss exposure - correct answer possibility that a loss resulting from damage to property to
which a person has financial interest
tangible property - correct answer property that has a physical form
real property - correct answer tangible property consisting of land and structures attached to land
personal property - correct answer tangible/intangible property that isn't real property
liability loss exposure - correct answer loss caused by legal responsibility of a person or damage
suffered by another party
personnel loss exposure - correct answer loss caused by person's death, disability, retirement,
deprives an org of the person's special skill or knowledge that the org cannot readily replace
,personal loss exposure - correct answer loss to an individual or a family caused by financial loss by
sickness, death, injury, unemployment
net income loss exposure - correct answer loss caused by reduction in net income
risk control - correct answer - conscious act/decision that reduces the frequency and severity of
losses, or makes them more predictable
- helps to comply with legal requirements, promote life safety, ensure business continuity
avoidance - correct answer risk control technique involving ceasing or never undertaking an activity
so that the possibility of a future loss occurring from that activity is eliminated, reduces loss frequency
loss prevention - correct answer risk control technique reducing frequency of a particular loss
loss reduction - correct answer risk control technique reducing severity of a particular loss
disaster recovery plan - correct answer plan for backup procedures, emergency response, and post-
disaster recovery to ensure that critical resoruces are available to facilitate the continuity of operations
in an emergency situation
separation - correct answer risk control technique that isolates loss exposures from one another to
minimize the adverse effect of a single loss, appropriate if an org can operate with only a portion of
these units left intact, usually a byproduct of another MGMT decision, reduces loss severity and makes
losses more predictable
duplication - correct answer risk control technique that uses backups, spares, or copies of critical
property, info, or capabilities and keeps them in reserves, not a part of an org's daily working resources,
reduces loss severity and makes losses more predictable
diversification - correct answer risk control technique that spreads loss exposures over numerous
projects, products, markets, or regions, more commonly applied to managing business risks (rather than
hazard risks), reduces loss severity and makes losses more predictable
, life safety - correct answer portion of fire safety that focuses on minimum building design to assure
safe exit from a burning building
retention - correct answer risk financing technique - losses retained by generating funds within the
org
advantages: more control over claims, most economical form, helps with timing of cash flows
transfer - correct answer risk financing technique - financial responsibility is shifted to another party
reduces variability of cash flow and exposure to large losses
primary layer - correct answer first level of insurance coverage about any deductible
excess layer - correct answer a level of coverage above the primary layer
umbrella policy - correct answer - liability policy that provides excess coverage above underlying
policies
- for large, low frequency losses
- provides coverage when aggregate limits have been exhausted, gaps in policies, excess liability
buffer layer - correct answer layer between primary layer and umbrella policy
self-insurance - correct answer - form of retention where an org records its own losses and maintains
a formal system to pay for them
- usually used for high-frequency loss exposures
large deductible plan - correct answer - an insurance policy with per occurrence/accident of $100k or
more
- insurer pays all claims even below deductible level, then gets reimbursed for claims that fall below the
deductible
