CPCU 500 UPDATED ACTUAL Exam
Questions and CORRECT Answers
Economy of Operations - CORRECT ANSWER - increase departmental and
organizational efficiency, pre-loss risk mgmt goal
Toerable uncertainty - CORRECT ANSWER - provide an awareness of potential losses
and an assurance of their effective management keeping the worry of accidental loss at a
tolerable level (pre-loss risk mgmt goal)
Survival - CORRECT ANSWER - resume operations eventually (post loss risk mgmt goal)
Continuity of operations - CORRECT ANSWER - resume operations quickly (post loss
risk mgmt goal)
Profitability - CORRECT ANSWER - maintain at least a minimum profit level NO
MATTER WHAT accident occurs. Post loss risk mgmt goals
Earnings stability - CORRECT ANSWER - maintain a specified earnings level from year
to year post loss rm goal
Minimize the effects of loss on society for moral and good public reasons - CORRECT
ANSWER - social responsibility
maintain the pre-loss growth pattern - CORRECT ANSWER - growth post loss rm goal
6 STEPS OF THE RM PROCESS - CORRECT ANSWER - 1) IDENTIFY EXPOSURES
2) ANALYZE (MEASURE) LOSS EXPOSURES
3) EVALUATE ALTERNATIVE RM EXPOSURE TREATMENT TECHNIQUES
4) SELECT THE BEST COMBINATION OF RM TECHNIQUES
,5) IMPLEMENT DECISION
6) MONITOR THE PROGRAM
4 methods of loss exposure identification - CORRECT ANSWER - 1) Document analysis
2) Compliance review
3) Personal inspections
4) Experts
Hazard analysis - CORRECT ANSWER - under the experts method of loss exposures
identification, reveals potential losses by IDing conditions that increase expected loss frequency
and/or severity
Probability - CORRECT ANSWER - measures the expected frequency of an event over
time in a stable environment
Impossible events have a probability of - CORRECT ANSWER -0
Certain events have a probability of - CORRECT ANSWER -1
Theoretical probability - CORRECT ANSWER - theoretical and constant, calculated
without actual trials (coin toss)
Empirical probability - CORRECT ANSWER - practical and changeable, the law of large
numbers applies
Empirical probability - CORRECT ANSWER - computed from historical data from study
samples (mortality rates)
Factors that improve the reliability of empirical probabilities: - CORRECT ANSWER -
use of a large number of data, an organization with stable operations and loss patterns
, The smaller the standard deviation, - CORRECT ANSWER - the smaller the degree of
dispersion and the greater the accuracy of predictions.
Risk managers use standard deviation to measure - CORRECT ANSWER - the confidence
in projecting losses
Coefficient of variation - CORRECT ANSWER - compares the degree of dispersion
between 2 data sets w/ substantially different means
equals the std dev/mean
2 dimensions of timing - CORRECT ANSWER - when losses occur
when payments are made
The Prouty Approach - CORRECT ANSWER - method of jointly analyzing the frequency
and severity of a loss exposure
evaluates the significance of a particular loss exposure in terms of possible combinations of
expected loss frequency and severity
Prouty's 4 categories of loss frequency - CORRECT ANSWER - 1) Almost nil- extremely
unlikely to occur
2) Slight- could occur, but hasn't
3) Moderate- occurs occasionally
4) Definite- occurs regularly
Prouty's 3 categories of loss severity - CORRECT ANSWER - 1) slight- losses that can be
retained easily
Questions and CORRECT Answers
Economy of Operations - CORRECT ANSWER - increase departmental and
organizational efficiency, pre-loss risk mgmt goal
Toerable uncertainty - CORRECT ANSWER - provide an awareness of potential losses
and an assurance of their effective management keeping the worry of accidental loss at a
tolerable level (pre-loss risk mgmt goal)
Survival - CORRECT ANSWER - resume operations eventually (post loss risk mgmt goal)
Continuity of operations - CORRECT ANSWER - resume operations quickly (post loss
risk mgmt goal)
Profitability - CORRECT ANSWER - maintain at least a minimum profit level NO
MATTER WHAT accident occurs. Post loss risk mgmt goals
Earnings stability - CORRECT ANSWER - maintain a specified earnings level from year
to year post loss rm goal
Minimize the effects of loss on society for moral and good public reasons - CORRECT
ANSWER - social responsibility
maintain the pre-loss growth pattern - CORRECT ANSWER - growth post loss rm goal
6 STEPS OF THE RM PROCESS - CORRECT ANSWER - 1) IDENTIFY EXPOSURES
2) ANALYZE (MEASURE) LOSS EXPOSURES
3) EVALUATE ALTERNATIVE RM EXPOSURE TREATMENT TECHNIQUES
4) SELECT THE BEST COMBINATION OF RM TECHNIQUES
,5) IMPLEMENT DECISION
6) MONITOR THE PROGRAM
4 methods of loss exposure identification - CORRECT ANSWER - 1) Document analysis
2) Compliance review
3) Personal inspections
4) Experts
Hazard analysis - CORRECT ANSWER - under the experts method of loss exposures
identification, reveals potential losses by IDing conditions that increase expected loss frequency
and/or severity
Probability - CORRECT ANSWER - measures the expected frequency of an event over
time in a stable environment
Impossible events have a probability of - CORRECT ANSWER -0
Certain events have a probability of - CORRECT ANSWER -1
Theoretical probability - CORRECT ANSWER - theoretical and constant, calculated
without actual trials (coin toss)
Empirical probability - CORRECT ANSWER - practical and changeable, the law of large
numbers applies
Empirical probability - CORRECT ANSWER - computed from historical data from study
samples (mortality rates)
Factors that improve the reliability of empirical probabilities: - CORRECT ANSWER -
use of a large number of data, an organization with stable operations and loss patterns
, The smaller the standard deviation, - CORRECT ANSWER - the smaller the degree of
dispersion and the greater the accuracy of predictions.
Risk managers use standard deviation to measure - CORRECT ANSWER - the confidence
in projecting losses
Coefficient of variation - CORRECT ANSWER - compares the degree of dispersion
between 2 data sets w/ substantially different means
equals the std dev/mean
2 dimensions of timing - CORRECT ANSWER - when losses occur
when payments are made
The Prouty Approach - CORRECT ANSWER - method of jointly analyzing the frequency
and severity of a loss exposure
evaluates the significance of a particular loss exposure in terms of possible combinations of
expected loss frequency and severity
Prouty's 4 categories of loss frequency - CORRECT ANSWER - 1) Almost nil- extremely
unlikely to occur
2) Slight- could occur, but hasn't
3) Moderate- occurs occasionally
4) Definite- occurs regularly
Prouty's 3 categories of loss severity - CORRECT ANSWER - 1) slight- losses that can be
retained easily
