Is in stock markets, bettin Peal estate cic | sneculative D| @ Particular Risk, Fundamental Risk, a. Carthefi, bank + dwelling b. Buying stocks, be a here race, investing in Enterprise Risk? b. Foriegn exchanye fMuct WSiNeSS, interest tate increases, new prod Fs Fundamental | & Farthquake, flood, t ete = Which of the above type of risk may receive the 7. Direct Loxs or Indirect Loss? emmnent’s assistance’? Direct a. The bo While the rest months, | incirect 8, Which of the following is L ity risk? a A Business fails 1 pay injured customers for using their defective products b. Tom fails to pay damages to the person he has injured ©. An insure fails 16 pay you the insurance fuce- value amount d. aand 9. Active Retention or Passive Retention? to the restaurant which was caused by fire aint is newly being built, the owner losses profits for several rocorrect. [aq les just in case of a future aE a. You buy an Auto Insurance policy with high deduct possible a you will receive payment from the insurer. Passive b. You save your money just in case of a future possible accident happens to your car, you will use your saved money to pay for the damage, 10. Methods of handling risk: Match the phr: ind sentences in the right column to that of the left column: I. After buying an LCD, you sign al a, Buy Insurance service contract with the retailer for all repairs after the warranty time 7 expires = =< = ~ | 2.” An importer may’ transfer his Fisk 10] Bb. Incorporation of a Business Fina the banks by buying forward 3 | _____ contracts, eptions or future contracts | —_— | 3. By forming Limited Liability c. Transfer of Risk by contracts company other partners, your 1 personal assets are not used lo pay to creditors. [ 4 Transfer “your wsk to insurance | —d. Hedging Price Risks -— companies 11. Provide 2 examples of risk for each of the following Aspects: a Daily lifeChapter 2 INSURANCE AND RISK Read chapter 2 and its slides, work in pairs adn answer the follo’ wing questions 1. Which of the following is true about the Law of Large Number? (@) The larger the number of the insured the lower the insu b. The larger the number of the insurers the lower the insuran c. The larger the number of exposures, the more closely will t ance premium ce premium he actual results approach the probable results that are expected from an infinite number of exposures. d. The spreading of losses incurred by the few over the entire group. 2. Basic Characteristics of Insurance Match phrases and sentences in the left column to that of the right column 1. With insurance, the insured is restored to his or her approximate financial position prior to the occurrence of the loss. («) a Risk Transfer (4) 2. With insurance, the pure risk is transferred from the insured to the insurer who is in stronger financial position to pay loss than the insured. (a) b. Payment for Fortuitous Losses (4) 3. With insurance, there is the spreading of loss incurred by the few over the entire group, so that average loss is Bee fer acnual loss (2) ©. Indemnification (1) Payment for what is unforeseen, unexpected and occurs as a result of chance _(b) 4. Pooling of Losses (5) 3. Which of the following means adverse selection in insurance? a. An Applicant who has higher-than-average chance of loss pays higher premium b. An Applicant who has lower-than-average chance of loss pays higher than expected ye chance of loss pays lower than expectedee fiona pen Lyrica ain ~o, 1 prhaty oh waar’ pe ; ee i 4 oe Eeoonne + lasie sk , ages fom unemad if' ee in, 5. Selec those statements that are appropriate to each of the following terms and 4 definitions > > (Personal Umbrella Liability Insurance (> @ Gi) Allied Lines ©) (iii) Professional Liability Insurance (b Gv) Fidelity Bonds >| © () Surety Bonds y ))& Monetaty compensation payment in the case where a contractor fails to construct the building on time. (0b. Payments to losses caused by dishonest or fraudulent acts of employees. *)e. Coverages for windstorm, hail, vandalism (2d. Insurance that provides protection against a catastrophic lawsuit or judgement. (9 Insurance that provides protection against liability claim arising out of the errors made by physicians to their patients. 6. Private insurance provides numerous coverages shat can be used to meet specific loss = situations. For each of the following situations, identify a private insurance coverage that would provide the desired protection. a. Emily, age 28, is a single parent with two dependent children. She wants to make J certain that funds are available for her children education if she dies before her Cy ye sogwance ) younger child finishes college. b. Danielle, age 16, recently obtained her driver's license. Her parents want to make certain they are protected if Danielle negligently injures another motorist while ¢ frp vuswanc) driving a family car. © Jacob, age 30, is married with two dependents. He wants his income to continue if he (oealibly rer) becomes cisable and unable wo wark. d. Tyler, age 35, recently purchased a house for $200,000 that is located in an area ere tornadoes frequently occur. He wants to make certain that funds are available if ‘the house is damaged or destroyed in a tornado. Conmurciel © Nathan, age 40, owns an upscale furniture store, Nathan wants to be protected if a ( el babi 4 customers injured while shopping in the store and sues him forthe bei injury. ere 7 Compare the risks of Fire with risks of War in terms of how well they meet the insarce ) 7 Com ; : ‘requirements of an insurable risk. 8. Private insurers provide social and economic benefits to society. Explain the following benefits of insurance to society. (Hemesvaner insuran Baal investment and accumulation, J insred jac bss, Zprmium a well mic costs of insurance in the American economy. conptrscte “he loss 4 fire RAS» War r * hd Suith inh Ne be He masurement eon + be dents No le war can cause calaspophuc oes (: inngulr to goreste andy Bde He pani Gan ke too yhHedy RABATU +1916} © ogee ala al ered lel | Phan Mai He ’ ic Gia Han PABA TU 2004 = | @) Loss reduce lowe # yl ws) njared chould be 4 CN, rau wea: i mph, vmvertigated Pre dure efor ‘| ones sere red tide. "ul porcrdel be SNOUB Sit ani a — Ha eet apn (ot ciahis veda INTRODUCTION TO RISK MANAGEMENT 1, Which of the followings is not the risk conrol to deal with loss exposures? cee LP Mens ittrcee tents Abst -hatelen agrtemed baa: Loss prevention Could kc c. Loss reduction be, ited by gbucl, edeubers ogee to Voll ¢ E heey pie GRewemtion (EL Ur empgerect ebuls Wh) pra laddow oy Seecfball mom fos 2. Wich of the followings is not the risk financing technique to treat loss exposures? ae @ Avoidance . Retention ¢. Non = insurance transfers 4. Commercial Insurance 3. Classify the following types of loss exposures: = Account Receivable, valuable papers and records property lots evposcrt epee ee at ee Fraud and Embezzlement -picuag’ “taut Oe pose Mecncnmlecl yr maci, Le oe at - Violation of Fiduciary responsibilities Ett "tt es Renee ue dot ipoes TY imme taheg 10g Lasts = Sexual harassment of employe. discrimination against employees Bim plagee benehig nts exponig = Continuing expenses after loss Bucinesr yome (98 Svpodurep = Contingent business income loss Cutmers income [nef ty paves = Death of key employees After, tl¢es lot? *¥posuress = Foreign currency tisk Fayeryy Lott ex Pos ives 4. A factory was totally destroyed ra flood, the risk manager estimates that replacement cost, debris removal, demolition costs, and other costs wilLtotal $25 million, The risk anager also estimates that a flood which caused more than $ 25 million loss to the factory is 0 unlikely that such a flogd would not occur more than once in 60 years. = The maximum possible loss is —-~#2-3 million ~The Maximum probable loss i illion Risk Control Method: Match statements and phrases in the left column to that of the right column: ‘a. Risk Avoidance” M \lo ® nh Cher mithed 9 hedrint 6 ell The worst possille das not serious les are highly predictalle ©. Loss Prevention 8: retention, non-insurance transfer, commercial feteahey ie contract and mount is subtracted from the loss payment _—stherwise payab BA plan in which the insurer d in the loss until the actual loss exceeds the amount a firm has decide to retain, 9. Active Retention or Passive Retention? A firm is aware ofthe loss exposure and plans to retain part or all oft. ACHe een fat b. A firm fails to identity the loss exposure, to act and for Pore (eset 10, What conditions shouldbe lille before retention is used ina risk manaement program? eas 11, Read and answer the application question one (1) on page atthe end ofthe chapter 3 O bak. poaneing tecknipes | Hdontages Duadlantags ere leek Gee es or Leperist Coe a - Tporense cub —— Can bony sire Aoses Heit | Coack lnguage mag be andiquont, ane not sisuradle 50 hanger may pil OO Ld pei pee | Ga mamey id other parks gail Py | Cam tangpr As to semcone ho) AI rsposibl ger He bos Feo Me pratrr bcarboll purer nay not gua cal or df deny Famians may be evlly (Operbnily |e dell als -Tasurers may provide ot ask| Negebedore oy codachs ks fe ¥ yet ana series ates naragr “y lecame fax tne = prams an eo - deoluchlt serig Fors“ coutas CEP Surplus = Total Assets - Total Liability ©. Surplus = Total Assets 4. Surplus = Total Revenve ~ Total Costs 10. Pxplain how the Insurance Industry Capacity and Investment Retums can help to reduce {he premium rate and loose underwriting standards inthe insurance market. [ % HeSurplus increases, an insurer may (&ducd/increase) the premiums charged to its ‘ clients and/or (\6osigR/tving) its underwriting standards + |b. lf Competition increases an insurer may (teduee/increase) the premiums charged to | __ itsclints and/or ssi/tving) its underwriting standards | © If*Clash Loss” oveuirs the insurer's surplus will (increase / reduce) sharply. bal \ 4. An insurer uses premiums collected to inVest in financial markets or in business. If the investment returns (ROI) reduce, the insurer may (reduce/ifierease) the premiums = charged to its elients anor onsingisng)ts underwriting standards a 11. Probable analysis: A vehicle fleet has 600 vehicles, And on average, 80 vehicles suffer physical damage cach yar. The probability ats pica! damage happens ding year mm is 2.33. ty TEI Probaiy Of to ependon eves Ficm has cwo pans in California and. Azone 7 The probability of fire atthe California plant is 6% and atthe Arizona plant is 10%. The probability that the fire occurs at the same time at two plants will be ~-Le0L.* 64, rl) 13. Two buildings are located close together and one building caches on fire. The probability Plt) <4 that the other building will bum is increased. The probability of fie loss of each building Ut [). op, B%. Te probly of he second bing wil ae rein he ese he fst bing 2-7 nas fre is 50%. What i the probability that both building are on fire? 2 7, (6,08) 14. Mutually Exclusive Events: the probability that the building is destroyed by fire is $6 = (0, |f)- P(B) And the probability that this building is destroyed by flood is 6%. What is the probability < mx 4+ 27, that the building is destroyed by either fie or flood? : (a ef 15, Se ae P(e) v Hei) « eCD« OCF) <5 ote 2K “Tom would like to purchase property insurance on his house. He is analyzing two Insurance Coverage Bids offered by two insurers A and B. Two offers have the same coverage amount. However they have different premiums and deductibles: Insurer A’s coverage requires an annual premium of $120,000 with $7,000 per-claim deductible. Insurer B's coverage requires an annual premium of $45,000 with $12,000 per-claim Expected Size of Losses x $6,000 $11,000 lect? 4 16666 —> My Seapectd paymnt a = 16666 + 120,00 =f66 16,~ { 0 > Wy Z payment = Seo, 000 + #5760 = 425; 060CHAPTER 5 TYPES OF INSURERS AND MARKETING SYSTEM 1. How do we call two changes in the financial service industries? a, The number of firms in the financial services industries has declined overtime because of mergers and acquisitions Consolidating CM ar) b. Financial institutions now can sell a wide variety of financial products that earlier outside their core business area. Convergence 2, Name the type of private insurer who has the following characteristics: a. A corporation owned by the policy-owners. There are no stockholders. The policy- owners elect board of directors. Mukual tpwer b, The world’s leading insurance market that provides services and physical facilities for its members to write specialized lines of insurance. L.loyol onde c. An unincorporated mutual in which insurance is exchdnged among the members. Each member of the reciprocal insures the other members and, in tum, is insured by them. Reci a ecchangs d. Insurer o1 oriented prepayment plans that provide coverage primarily for hospital service. ©. Organizations that provide comprehensive health care services to their members. Maimtenance Organitahen C0) 3._Match those statements and phrases in the left column to that of the right column: aniiationre hich Grically ae organized as non-profit, community Blue Cros & Blue ield Plas T. A mutual insurer who has the right to assess policy-owners an additional premium amount if the insurer’ financial operations are unfavorable. a. Fraternal Insurer a 2. A mutual insurer who provides life and e to members of a social Ly b. Advance Premium Mutual c. Assessment Mutual—— a. A mutual insurer cedes all of its assets and liabilities to a stock company. And then { the mutual insurer is dissolved. ull etinsurance oy be A mutual ner erend Thi Articles 6F Inebrporation and ls reorganized « sock tes insurer. Pura conversa’ < «©. A mutual insurer and a stock insure at joined together to form a single stock insurer. Margy zh 6. Which ofthe following is NOT a characteristic of Lloyd's of London? ; s written by the various syndicates that belong to Lloyd's 4 dual members of Lloyd’s now have limited legal liability d. Lloyd's is licensed only in a smal! number of jurisdictions in the United States. 7. Which of the following refers to Express authority, Implied Authority and Apparent authority ofan Insurance Agent? a. Anagent has the authority to perform all incidental acts necessary to exercise powers that are expressly given. Trp caulharihy b. An agent receives powers from the insurer Eyprts oath 4 ¢. The authority and power that the public reasonably believe that an agent possesses: based on the actions of the insurer. parent _quithersy 8. Which of the following is NOT the characteristic of Agency Building System in Life Insurance? ‘a. The insurer builds its own agency force by recruiting, financing, training, and supervising new agents b. Two types of Agency Building System are General Agency system and Managerial system RG ©) An agent may have contracts with more than one insurer i. Most insurers provide some financial assistance to the general agent. 9. Explain the legal fact that the agency owns the expirations or ren tothe yy H yop ld te pleghills ¢ cle panes lad yu Ryde ae fo babeo | What is a mass-merchandising plan in property and liability insurance? Y is a plaw gor insuring indiiduah in a grup. Px L inuvenee 13 sold to inclwidual members gq 0 pmf. "11. Explain the statement: “A stock insurer cannot issue an sable policy...”. ; ‘ Wists eonih Hatafirer chaee aaa) valli yy Jags ar 1 tf Bee he Tuleh becses, but *y ‘hh dae the poterhal be gain rough dividends a share Price increaaes, rer’s assets and Liabilities. is higher than the demand for insurance policies. ic by Ph.D Ho Nhut Quang) id fy Mid ee i (a wal 27. Distinguish the following terms used in reinsurance: Ceding company, Reins Retrocession and Retrocessionaite, es stirance that is ceded to the fl A. Cessiim ‘a. The amount oF the reed 1. (aluer \osik b. ‘The amount of the insurance retained by the eeding company The insurer that transfers its insurance to another insures ceaha, om another Insure. i saeco 9), a) The velnturer transfer ts retisitance to another insurer ©, Reiivurey —«€ The insurér that receives part or all of the insurance amount from the ceding company i The insurer that receives part or all of the insurance amount fe einsurer™ one nt from another reinsurer = ‘$. What is meant by the “Unearned Premium Reserv ‘The premiums that are paid in advance but the period of protection has not yet expired. b. The premiums that are paid in advance but the period of protection has already expired. ©. The premiums that are shared between the ceding insurer and its reinsurer 4d. The premiums that are not paid when the loss occurs. 9, What is Facultative Reinsurance and what is Treaty Reinsurance? An insurer receives an application for insurance which exceed its financial capa Before the policy is issued, the insurer shops around for reinsurance and contact several insurers. spculelive yeingucorth, b. A contract has been made between an insurer and its reinsurer. The contract states that the insurer has agreed to cede insurance (o reinsurer and the reinsurer has agreed to-accept the business. faoty (insur 10. Match those phrases and sentence’ in the left column to that in the right column. 1. Tulous Fire Insurance and Absolute] a, Reinsurance Pool Safety Corp. (ASC) have signed an 5 agreement in which premiums and losses are shared by the two company on the basis of 60% for Tulous and - 40% for ASC respectively. 2. According to an agreement signed by |b. Surplus-Share Treaty Green Apple Fire and AAA Fire Corp,| 9, the later has agreed to accept insurance if the loss amount exceeds the former's retention limit or a line of $600,000, 3. Several insurers joint together to accept | _¢, Quote Share Treaty an application for large amount 4i Sa RAD Gio HAN BABATU 20042 ran mat +éné Hann papats 19/27 REVIEW FOR MID-TERM EXAM 1. Analyzing Insurance Coverage Bids: Tom would like to purchase property insurance on his house. He is analyzing (wo Insurance Coverage Bids offered by two insurers A and B. Two offers have the same coverage amount, However they have different premiums and deductibles: Insurer A°s coverage requires an annual premium of $280,000 with $12,000 per- claim deductible. Insurer B's coverage requires an annual premium of $190,000 with $20,000 per- claim deductible Using various loss forecasting methods, Tom came up with the following results: Expected umber of Losses Expected Size of Losses (Frequency) x 20 $9,000 12 $15,000 18 $ 20,000 Total expected number of losses = 50 Given the discount rate of r= 15%, which coverage bid should Tom select? 2. Read chapter 7 and answer the application questions: 1,24 ‘Submit your discussion results at the end of the class er tem |e py. £84800. 4.469, SOS. 22 Dei PON est) pyre £4 445,85. 22 + fo0, 60 of 745 free, f 624,086. 9 fy + f bus, 0869 $ igo,oo0 + f 216,086 IC (nine Be ook pl) WL 916,086. 96@® Plicy older ¢ surplis hl assch — Total Labilides = $0m - £70m = ¢ 20m Hew pobeyholder's surplas is $ 20mdlies @® Fre gain ror” eperobns “byere duidends andl faxes _ Total routs — Toda ppenses es Net nash Dea er a * sn incime —(ncernt- = [beng * * kacib ye | Ve ri _benefany 9" amuil fe 7 boos Tlengis Biter t5y, = ( + £5.5m + $o.km + f0.sen) + fasm + $lém 2 $ 23m -$17.8m = FSi bdo dona , te pon gran sper Lyere dridirds g hous ts f 5.62 mille p< ead tah odoin! ope. $tme , ; aan taom —e Diese: aploinikn 20h mp dS nate = 202 +402 202