ARM 402 EVALUATION EXAM 2026 QUESTIONS AND
SOLUTIONS RATED A+
✔✔States Insurer has a $1,200,000 xs $200,000 per policy excess of loss treaty with
Coastal Reinsurer States sustains the following losses:
Policy 1: $180,000
Policy 2: $400,000
Policy 3: $1,500,000
How much will States Insurer retain for the loss under Policy 3?
A) $200,000
B) $250,000
C) $300,000
D) $600,000 - ✔✔$300,000
** States Insurer will retain $300,000 for the loss under Policy 3 - Of the total
$1,500,000 loss, $1,200,000 is reinsured, leaving $300,000 retained **
✔✔Ivanhoe Corporation purchases stock in a bank and in a pharmaceutical
manufacturer. Because these are unrelated industries, Ivanhoe hope that any losses in
one stock will be more than offset by profits in another. Ivanhoe is using which one of
the following risk management techniques?
A) Risk transfer
B) Separation
C) Diversification
D) Duplication - ✔✔C
✔✔The right to invade another's interest to promote or protect one's own greater
interests is
A) Last clear chance
B) Immunity
C) Self-defense
D) Legal privilege - ✔✔D
✔✔Self-insurance costs can be lower than the cost of risk transfer because
A) Premium taxes for self-insurance are lower than for insurance
B) Residual market loadings are lower than for insurance
C) An insurer's overhead costs are eliminated
D) The risk charge is lower than for insurance - ✔✔C
, ✔✔A loss limit in the retrospective rating plan formula
A) Is the maximum amount of losses that will be included in the formula
B) Is applied on an individual loss basis to limit losses included in the formula
C) Is always used in the retrospective rating plan formula
D) Is the most an insured organization will pay during the policy term - ✔✔B
✔✔Punitive damages are intended to
A) Compensate the defendant for medical expenses
B) Punish the defendant
C) Punish the plaintiff
D) Compensate the injured party for pain and suffering - ✔✔B
✔✔An organization wants to create a trademark for its line of products. Which one of
the following risk control measures for trademarks should the organization use to avoid
the possibility of infringing on someone else's trademark?
A) Notice
B) Restrictive covenants
C) Searches and watches
D) Registration - ✔✔C
✔✔Intellectual property is protected through
A) Laches
B) Tort
C) Contract
D) Statutes - ✔✔D
✔✔A primary loss prevention measure for contractual liability is to have most contracts
A) Meet American Bar Association guidelines
B) Be oral rather than written
C) Reviewed by counsel before they are signed
D) Reviewed by management before they are signed - ✔✔C
✔✔A state wants to build a road through an environmentally-sensitive area. The area
includes endangered flora and fauna, as well as wetlands. Build-Rite Construction
expressed interest in the project, but is concerned about potential liability. Build-Rite
agrees to build the road if the state assumes all responsibility for any liability arising out
of the construction of the road. A state representative has signed-off on the contract,
agreeing that the state will be responsible for all liability. This transfer of responsibility
for fault illustrates which one of the following forms of noninsurance risk financing
transfer?
SOLUTIONS RATED A+
✔✔States Insurer has a $1,200,000 xs $200,000 per policy excess of loss treaty with
Coastal Reinsurer States sustains the following losses:
Policy 1: $180,000
Policy 2: $400,000
Policy 3: $1,500,000
How much will States Insurer retain for the loss under Policy 3?
A) $200,000
B) $250,000
C) $300,000
D) $600,000 - ✔✔$300,000
** States Insurer will retain $300,000 for the loss under Policy 3 - Of the total
$1,500,000 loss, $1,200,000 is reinsured, leaving $300,000 retained **
✔✔Ivanhoe Corporation purchases stock in a bank and in a pharmaceutical
manufacturer. Because these are unrelated industries, Ivanhoe hope that any losses in
one stock will be more than offset by profits in another. Ivanhoe is using which one of
the following risk management techniques?
A) Risk transfer
B) Separation
C) Diversification
D) Duplication - ✔✔C
✔✔The right to invade another's interest to promote or protect one's own greater
interests is
A) Last clear chance
B) Immunity
C) Self-defense
D) Legal privilege - ✔✔D
✔✔Self-insurance costs can be lower than the cost of risk transfer because
A) Premium taxes for self-insurance are lower than for insurance
B) Residual market loadings are lower than for insurance
C) An insurer's overhead costs are eliminated
D) The risk charge is lower than for insurance - ✔✔C
, ✔✔A loss limit in the retrospective rating plan formula
A) Is the maximum amount of losses that will be included in the formula
B) Is applied on an individual loss basis to limit losses included in the formula
C) Is always used in the retrospective rating plan formula
D) Is the most an insured organization will pay during the policy term - ✔✔B
✔✔Punitive damages are intended to
A) Compensate the defendant for medical expenses
B) Punish the defendant
C) Punish the plaintiff
D) Compensate the injured party for pain and suffering - ✔✔B
✔✔An organization wants to create a trademark for its line of products. Which one of
the following risk control measures for trademarks should the organization use to avoid
the possibility of infringing on someone else's trademark?
A) Notice
B) Restrictive covenants
C) Searches and watches
D) Registration - ✔✔C
✔✔Intellectual property is protected through
A) Laches
B) Tort
C) Contract
D) Statutes - ✔✔D
✔✔A primary loss prevention measure for contractual liability is to have most contracts
A) Meet American Bar Association guidelines
B) Be oral rather than written
C) Reviewed by counsel before they are signed
D) Reviewed by management before they are signed - ✔✔C
✔✔A state wants to build a road through an environmentally-sensitive area. The area
includes endangered flora and fauna, as well as wetlands. Build-Rite Construction
expressed interest in the project, but is concerned about potential liability. Build-Rite
agrees to build the road if the state assumes all responsibility for any liability arising out
of the construction of the road. A state representative has signed-off on the contract,
agreeing that the state will be responsible for all liability. This transfer of responsibility
for fault illustrates which one of the following forms of noninsurance risk financing
transfer?
