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FIN 151-900 Chapter 2 Review

FIN 151-900 Chapter 2 Review - FIN 151-900 Chapter 2 Review...

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FIN 151-900 Chapter 2 Review 1. Pooling of losses is the spreading of losses brought onto a few over a whole group so the average loss is exchanged for actual loss. Payment of fortuitous losses is the financial handling of a loss that is unpredicted and unanticipated and happens by chance. Risk transfer means that a pure risk is passed on from the insured to the insurer (who is more likely to be able to pay for the loss). Indemnification means that the insured is restored to his or her approximate financial position prior to the occurrence of the loss. 2. The law of large numbers requires that the greater the number of exposures, the more likely the actual results will approach the expected results. 3. The first requirement of an insurable risk is that there needs to be a large number of exposure units. The second is that the loss needs to have been accidental and unexpected. The third is that the loss should be determinable and measurable. The fourth is that the loss should preferably not be catastrophic. The fifth is that the chance of loss should be
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