RMIN 4000 RAGIN EXAM 1 STUDY GUIDE | 2026 | WITH
FULL SOLUTIONS
Worker's compensation - Answers -employee injuries can have compensation in a
percentage of lost wages, medical payment/care, death benefits, and body part
payments
Terrorism Risk & Insurance Act (2002) - Answers -federal backstop for terrorism losses
where the gov't pays a % of losses above a certain amount
-will have to be renewed several times
-currently 85% of losses above $100 million
Risk - Answers -a calculated possibility of a negative outcome
Calculated possibility - Answers -probabilistic outcome (chance/likelihood) that is
known or estimated
-sometimes easier/harder
-ranges from 0% to 100%
Negative outcome - Answers -loss must be quantifiable
RISK - Answers -LOSS + LIABILITY
Pure risk - Answers -2 future states of the world
1. Nothing
2. Loss
Major types:
- Personal Risk
- Property Risk
- Liability Risk
Speculative risk - Answers -3 future states of the world
1. Loss
2. Nothing
2. Gain
Example: Gambling, marriage, investing, college, robbing a bank
Can you buy insurance for pure risks? - Answers -Yes, typically but some types can be
hard to insure
Can you buy insurance for speculative risks? - Answers -Generally No, but usually you
can take some off setting gambles
, Why can't you buy insurance for speculative risks? - Answers -It can cause
catastrophic loss for insurance as you are more likely to take riskier gambles
Fundamental risk - Answers -risk that every person/firm in a sample faces at the same
time and to a similar extent
-localization make it harder to judge/determine
-unemployment, recession, major catastrophes, inflation
Particular risk - Answers -risk that applies to only one or a small # of people/firms in a
sample at the same time
-fire, theft, entrepreneurship (failed restaurant)
Systemic risk - Answers -instability in the financial system as a result of
interdependency between players in the market
- Domino Effect
- EX. Financial Housing Crisis
* Type of FUNDAMENTAL RISK
Risk attitudes - Answers -how we feel about risk and how that impacts Risk
Management decision making
Risk averse - Answers -don''t like risk, will pay $ to offload risk (insurance), more risk
averse are willing to pay more $ for insurance, will reject some favorable bets.
More risk averse --> Willing to pay more (buy insurance etc.)
Risk seeking - Answers -likes risk, will pay to take on risk (gambling), will accept some
unfavorable bets
Expected value - Answers -= sum (probabilities X outcomes)
- when E(v) > 0 (favorable bet)
- when E(v) < 0 (unfavorable bet)
Frequency of loss (F) - Answers -how often do losses occur, how likely is a loss, the
PROBABILITY of a loss
Severity of loss (S) - Answers -how much ($) are losses when they do occur
= avg loss size/amount
Exposure - Answers -the thing of value (asset) that could be lost
Noun; exposure --> what is exposed
Ex. Car ---> belongings
Peril - Answers -the immediate cause of the loss
(verb)
Ex. Car ---> theft, DUI, Vandalism
FULL SOLUTIONS
Worker's compensation - Answers -employee injuries can have compensation in a
percentage of lost wages, medical payment/care, death benefits, and body part
payments
Terrorism Risk & Insurance Act (2002) - Answers -federal backstop for terrorism losses
where the gov't pays a % of losses above a certain amount
-will have to be renewed several times
-currently 85% of losses above $100 million
Risk - Answers -a calculated possibility of a negative outcome
Calculated possibility - Answers -probabilistic outcome (chance/likelihood) that is
known or estimated
-sometimes easier/harder
-ranges from 0% to 100%
Negative outcome - Answers -loss must be quantifiable
RISK - Answers -LOSS + LIABILITY
Pure risk - Answers -2 future states of the world
1. Nothing
2. Loss
Major types:
- Personal Risk
- Property Risk
- Liability Risk
Speculative risk - Answers -3 future states of the world
1. Loss
2. Nothing
2. Gain
Example: Gambling, marriage, investing, college, robbing a bank
Can you buy insurance for pure risks? - Answers -Yes, typically but some types can be
hard to insure
Can you buy insurance for speculative risks? - Answers -Generally No, but usually you
can take some off setting gambles
, Why can't you buy insurance for speculative risks? - Answers -It can cause
catastrophic loss for insurance as you are more likely to take riskier gambles
Fundamental risk - Answers -risk that every person/firm in a sample faces at the same
time and to a similar extent
-localization make it harder to judge/determine
-unemployment, recession, major catastrophes, inflation
Particular risk - Answers -risk that applies to only one or a small # of people/firms in a
sample at the same time
-fire, theft, entrepreneurship (failed restaurant)
Systemic risk - Answers -instability in the financial system as a result of
interdependency between players in the market
- Domino Effect
- EX. Financial Housing Crisis
* Type of FUNDAMENTAL RISK
Risk attitudes - Answers -how we feel about risk and how that impacts Risk
Management decision making
Risk averse - Answers -don''t like risk, will pay $ to offload risk (insurance), more risk
averse are willing to pay more $ for insurance, will reject some favorable bets.
More risk averse --> Willing to pay more (buy insurance etc.)
Risk seeking - Answers -likes risk, will pay to take on risk (gambling), will accept some
unfavorable bets
Expected value - Answers -= sum (probabilities X outcomes)
- when E(v) > 0 (favorable bet)
- when E(v) < 0 (unfavorable bet)
Frequency of loss (F) - Answers -how often do losses occur, how likely is a loss, the
PROBABILITY of a loss
Severity of loss (S) - Answers -how much ($) are losses when they do occur
= avg loss size/amount
Exposure - Answers -the thing of value (asset) that could be lost
Noun; exposure --> what is exposed
Ex. Car ---> belongings
Peril - Answers -the immediate cause of the loss
(verb)
Ex. Car ---> theft, DUI, Vandalism
