Mid-Term Review

MIX & MATCH: Find the matching definitions

Know each of these !
Definitions of Risk & Probability Which definition fits?

Objective Risk Persons estimate of the chance of loss

Objective Probability Relative variation of actual loss from expected
Subjective Risk Risk of collapse of an entire system or market
Subjective Probability Either profit or loss is possible
Systemic Risk Risk that affects only individuals and not entire economy
Diversifiable Risk Long-run relative frequency of an event based on observations
Pure Risk Only the possibility of loss or no loss exists
Speculative Risk Uncertainty based on persons mental condition

Risks and Causes Which definition fits?

Personal Risk Character defect in individual that increases frequency/severity

Property Risk The cause of the loss
Liability Risk Financial loss that results from damage/destruction of property
Peril Risk of being held legally liable for injury or property damage
Hazard Risk that directly affects the individual
Moral Hazard Indifference to loss which increases frequency/severity
Attitudinal Hazard Condition that creates/increases frequency or severity of loss
Direct Loss Financial loss that results indirectly from direct physical damage
Indirect Loss Risk of having property damaged or destroyed
Risk Management Techniques Which definition fits?

Avoidance Spreading the loss exposure across different parties

Loss Prevention Dividing or separating assets
Loss Reduction Loss exposure is never acquired or is abandoned
Duplication Deliberately retaining all or some of the risk
Diversification Reduce frequency of loss
Separation Reduce severity of loss
Active Retention Risk unknowingly retained
Passive Retention Have backups or copies

Forms of Insurance Companies Which definition fits?

Stock Insurer Company owned by policyholders

Mutual Insurer Owned by parent company to insure parent
Holding Company Company that controls an insurer
Lloyds of London Owned by stockholders
Captive Insurers Writes specialized lines of insurance
Finances Which definition fits?

Reserves Portion of gross premium received for future time periods

Admitted assets Reflect obligations that must be met in the future
Non-admitted assets Cyclical pattern of profitable and nonprofitable years
Unearned premium Difference between assets and liabilities
Earned premium Portion of premium needed to pay losses and related expenses
Surplus Assets excluded from balance sheet because of uncertain liquidity
Pure premium Portion of gross premium received for past time periods
Gross premium Consists of pure (net) premium plus loading for expenses/profit
Underwriting Cycle Method used by regulators to ensure insurer solvency
Risk Based Capital
Assets insurer allowed to show on balance sheet

Insurance & Operations Topics

What is reinsurance? Describe how quote-share, surplus-share, excess of loss and
reinsurance pools work.
Describe underwriting and adverse selection.
Describe the various types of agents and brokers.
Describe the factors used in schedule rating commercial properties
Describe the Law of Large Numbers
Describe these sections of insurance contracts: insuring agreement, conditions,
exclusions, declarations, definitions.
Describe the fundamental principles of insurance: indemnity, insurable interest,
subrogation, utmost good faith
Describe risk management tools of Risk Map, VAR, and catastrophe modeling
Describe each of the unique features of insurance contracts: aleatory, unilateral,
conditional, personal and adhesion.
Describe how to calculate a gross rate given a pure premium and expense ratio

Group Medical Topics

What is the difference between a deductible and coinsurance?
How do deductibles, coinsurance, and out-of-pocket limits work when you have a
medical expense? BE ABLE TO DO SAMPLE CALCULATIONS
Describe how the typical coordination of benefits provision works on medical plans
What is the Health Insurance Marketplace?
Disability Insurance Topics
Describe the typical features of a short term disability plan
Describe the typical features of a long term disability plan

Life Insurance Topics

What are the differences between a term, whole life, and limited-pay life insurance
policy? Describe what happens at the end of a term life policy.
What happens to premiums each year for yearly renewable term life insurance? For 20-
year term? For Whole Life? For limited pay life? When whole life becomes paid-up?
Describe the incontestable clause, entire-contract clause, ownership clause, and change
of plan provision.
What is a rider? Describe each of the typical life insurance riders that are available and
what they do.
Describe the uses for an absolute assignment versus a collateral assignment