Question 1 The notion of risk is inextricably linked to the notion of uncertainty. Question 1 option: True False Question 2 A gambler is likely to be risk neutral. Question 2 options: True False Question 3 In the global credit crisis of 2008, what was the function of credit default swaps? Question 3 options: It derived or created credit for borrowers It insured mortgage-backed securities It guaranteed payment by the U.S. government It insured insurance companies It introduced financial instruments like mortgage-backed securities in the market Question 4 Economists consider most widely held or publicly traded corporations as making decisions in a risk-neutral manner since their shareholders have the ability to diversify away risk. Question 4 options: True False Question 5 Which of the following is an example of risk? Question 5 options: You could or could not get caught driving under the influence of alcohol. Smoking cigarettes at various numbers per day. Power plant and automobile emission of greenhouse gasses (CO2). Higher car insurance rates or cancellation of auto insurance. Potential variety in interest rates over time. Question 6 The legal system is designed to mitigate risks and is not intended to create new risks. Therefore, it does not have the power of transferring the risk from your shoulders to mine. Question 6 options: True False Question 7 Risk is not synonymous with uncertainty. Question 7 options: True False Question 8 What is a pre-condition to the element of risk? Question 8 options: Uncertainty Outcomes Loss Opportunity Accountability Question 9 Managing risks associated with an objective of value maximization has succeeded more than managing risks when we use the context of minimization of losses. Question 9 options: True False Question 10 _____ is having two potential outcomes for an event or situation. Question 10 options: Loss Reliability Uncertainty Opportunity Accountability Question 11 In a soft market, when insurance capacity is low. Question 1 options: True False Question 12 Stock insurers do not show “capital” on their balance sheets. Question 2 options: True False Question 13 An insurer must have a license from each state in which it conducts business. Question 3 options: True False Question 14 National Association of Insurance Commissioners (NAIC) model laws cannot be modified by the state; this is to ensure uniformity in insurance regulations. Question 4 options: True False Question 15 Each line of business has its own break-even point. Question 5 options: True False Question 16 Insurance companies are required to submit uniform financial statements to the regulators. These statements are based on statutory accounting (SAP) as opposed to the generally accepted accounting (GAP) system. Question 6 options: True False Question 17 Depending on the investment income contribution of each line of insurance, the longer tail lines have a smaller break-even combined ratio level. Question 7 options: True False Question 18 Insurance rates are considered dynamic because of the actuarial cycle. Question 8 options: True False Question 19 The commissioner of insurance generally has more control over insurers not licensed in the state. Question 9 options: True False Question 20 Combined ratio does not include income from investments. Question 10 options: True False
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