An insurer has a contractual agreement which transfers a portion of its risk exposure to another insurer. What type of contractual arrangement is this?

1.  Coinsurance contract

2.  Reciprocity arrangement 

3.  Mutuality agreement

4.  Reinsurance contract 

A business becoming incorporated is an example of risk ____.

1.  transfer 

2.  reduction

3.  severance 

4.  retention

Which of these statements is NOT a characteristic of the law of large numbers?

1.  Rates can be calculated to compensate for losses

2.  Losses can be predicted in large groups with a higher degree of accuracy

3.  Individual losses can be predicted based on past experience 

4.  Group losses can be predicted based on past experience

Purchasing insurance is an example of risk

1.  retention

2.  transference 

3.  avoidance 

4.  sharing

Which of the following types of risk is insurable?

1.  Physical

2.  Speculative 

3.  Pure 

4.  Operational

Which of the following can be defined as "the potential for loss"?

1.  Risk 

2.  Transference

3.  Hazard 

4.  Peril

Which of the following describes the act of insuring a risk against possible loss?

1.  Risk transfer 

2.  Loss management

3.  Hazard reduction

4.  Risk avoidance 

Which of these statements regarding insurance is false?

1.  As the number of insured units increases, the number of losses decreases 

2.  Pure risk can be insured 

3.  One way insurers deal with catastrophic loss is through reinsurance

4.  Speculative risk cannot be insured

According to the law of large numbers, how would losses be affected if the number of similar insured units increases?

1.  Ability to predict losses decreases

2.  Predictability of losses will be improved 

3.  No effect on predicting losses

4.  The higher the exposure, the higher the cost of each loss