Exam (elaborations)
CPCU 500 EXAM|26 QUESTIONS AND ANSWERS (insurance designation)
CPCU 500 EXAM|26 QUESTIONS AND ANSWERS (insurance designation)
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CPCU 500 EXAM|26 QUESTIONS ANDANSWERS (insurance designation)
Risk - -the uncertainty about outcomes, with the possibility that some of the
outcomes can be negative. Quantified by knowing the probability of the
possible outcomes
-Probability - -the likelihood that an outcome or event will occur.
Probabilities are stated as a decimal figure, a percentage, or a fraction.
-What are the 2 elements associated with risk? - -uncertainty of outcome +
possibility of negative outcome
-Pure Risk - -a chance of loss or no loss, but no chance of gain.
-Speculative Risk - -a chance of gain or loss (investment).
-Price Risk - -the uncertainty over the size of cash flows resulting from
possible changes in the cost of raw materials and other inputs (lumber, gas,
or electricity)
-Credit Risk - -the risk that customers and other debtors will fail to make
promised payments.
-Distinguish Diversifiable vs. Nondiversifiable Risk - -Diversifiable risks can
be managed by spreading (such as purchasing multiple businesses).
Nondiversifiable risks are correlated so that their gains or losses tend to
occur simultaneously rather than randomly.
-What are the 4 quadrants of risk? - -Hazard, Operational, Financial, and
Strategic risk
-Hazard - -a condition that increases the frequency or severity of a loss.
-What are the classifications of risk? - -pure vs. speculative. subjective vs.
objective. diversifiable vs. nondiversifiable.
-The quadrants of risk focus on... - -the source of risk and who has
traditionally managed it
-The classifications of risk focus on... - -some aspect of the risk itself
-3 components of Financial consequences or risk? - -Expected cost of losses
or gains. Expenditures on risk mgmt. Cost of residual uncertainty.
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