The Risk of an Insurer with More Exposures Is Relatively

question 15

Multiple Choice

The risk of an insurer with more exposures is relatively lower than that of an insurer with fewer exposures under the same expected distribution of losses.How do small insurers reduce the uncertainty in predicting losses?

• A)They use the sharing of data that exists in the insurance industry.
• B)They try to reduce the severity of exposures.
• C)They use the risk avoidance method to reduce losses.
• D)They use the risk retention method to reduce losses.
• E)They cannot reduce the uncertainty in predicting losses.

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Definitions:

Journal Entry

The accounting method for expressing the effects of a transaction on accounts in a debits-equal-credits format.

Noncumulative

Noncumulative refers to dividends on preferred stock that, if not declared or paid in a given period, do not accumulate and are not owed to shareholders in future periods.

Common Stockholders

Individuals or entities that own shares of common stock in a corporation, granting them rights to dividends and votes on company matters.

Dividend

A portion of a company's earnings distributed to shareholders, usually in the form of cash or additional shares.