RMI Exam 1 Review
Uncertainty concerning the occurrence of event (e.g., will I profit or lose
by playing the game?
of a negative outcome, or more specifically the
of a negative outcome
Categorization of Risk
situation where there is only the possibility of loss or no loss, e.g., a
costly accident or no accident.
Commercial liability insurance—less variability, more predictable.
Pure risks are insurable b/c they are more predictable.
: Either profit, loss, or no loss, e.g., betting, football pools,
going into business for yourself, etc.
Chance you will succeed, chance you will fail
Typically not insurable.
Types of Losses
from Pure Risks:
damage to assets, injury and illness to employees,
liability claims and defense costs
loss of net cash flow, continuing and extra operating
financial leverage and bankruptcy costs
Residual affects of direct losses; secondary/ income statement
: risks inherent in a level, unchanging society (random events like
fire, windstorm, death
: risks produced because of changes in society, i.e., technology,
or legal liability due to change of attitude by courts
Data security (not a concern 10 years ago)
Change or reaction of laws can increase or decrease risk
a risk that affects the entire economy, i.e.,
inflation, wars, natural disasters
affects only the individual, not entire
community, i.e., theft of our TV.
: how is an individual impacted when its assets or earnings are
: how is a firm or organization impacted by various risks that
can upset its assets or earnings?
cause or source of loss
condition that increases the frequency or severity of loss