Cpcu 500 Chapter 4

Front 1

expenses that constitute organizations cost of risk

Back 1

-administrative expense
-risk control expense
-risk financing expense
-managing expense

Front 2

factors that affect organization maximum cash flow

Back 2

-organization size
- financial strength
-management own degree of rush

Front 3

retention

Back 3

risk financing technique which losses funded by organization

Front 4

transfer

Back 4

financial responsibility for loss is shifted to another party

Front 5

4 planned retention funding techniques

Back 5

- current expenses of losses
- using unfunded reserve
- using a funded reserve
- borrowing funds

Front 6

2 limitation on risk transfer

Back 6

1. not typically pure transfer but combination of transfer and retention
2. ultimate responsibility for paying the loss remains with individuals

Front 7

advantage of retention

Back 7

cost savings
control of claim process
timing of cash flows
incentives for risk control

Front 8

advantage of transfer

Back 8

reducing exposure to large loss
reducing cash flow variability
providing ancillary services
avoiding adverse employee and public relations

Front 9

risk tolerance

Back 9

higher organization willingness to accept risk, higher likelihood risk will be retained

Front 10

primary layer

Back 10

first level of insurance coverage above deductible

Front 11

excess layer

Back 11

level of insurance above primary level

Front 12

excess coverage

Back 12

insurance that cover losses above an attachment point below which there is another policy

Front 13

umbrella policy

Back 13

liability pool that prices excess coverage and may provide coverage not available on underlying policy

Front 14

buffer layer

Back 14

level of excess ins cover between primary and umbrella policy

Front 15

self insurance

Back 15

form of retention under which an org records it's losses and pays for then

Front 16

large deductible plan

Back 16

workers comp plan with a deductible at least $100k

Front 17

captive insurer

Back 17

subsidiary formed to insure the loss exposure of its parent company

Front 18

risk retention group

Back 18

group captive formed under the requirement of liability risk retention act of 1995

Front 19

rent a captive

Back 19

arrangement under which an org rents capital from captive

Front 20

protected cell company

Back 20

Front 21

finite risk insurance plan

Back 21

Front 22

pool

Back 22

Front 23

retrospective rating plan

Back 23

Front 24

loss limit

Back 24

Front 25

capital market

Back 25

Front 26

securitization

Back 26

Front 27

insurance securitization

Back 27

Front 28

hedging

Back 28

Front 29

derivative

Back 29

Front 30

contingent capital arrangement

Back 30

Front 31

captive operation

Back 31

types of loss exposure captive will cover, domicile, and whether business outside parent business is acceptable

Front 32

domicile selection

Back 32

initial capital requirements, taxes, annual fees,

Front 33

3 types of group captive

Back 33

* risk retention group
* rent a captive
* protected cell company

Front 34

advantage of hedging

Back 34

can reduce an organization business risk loss exposure and reduce dependence on traditional financial

Front 35

disadvantages of hedging

Back 35

can destabilize an organization general risk financing plan and it's entire financial structure is seriously jeopardize