The first step in determining whether an organization should form or join a captive insurer is

Group of answer choices

Conducting a feasibility study.

Determining domicile.

Setting premiums.

Selecting coverages.

Begley Company insured its auto liability exposure through a retrospectively rated plan for a calendar year. Auto liability losses for the calendar year were: $120,000, $20,000, $50,000, $180,000, and $70,000. The retrospectively rated plan had a policy limit of $500,000 per-loss, a loss limit of $50,000 per loss, and a maximum aggregate retention of $250,000. What are Begley's retained losses for the calendar year under this plan?

Group of answer choices

$250,000

$220,000

$120,000

$70,000

The major difference between a retrospectively rated workers compensation plan written on an incurred loss basis and a retrospectively rated workers compensation plan written on a paid loss basis is

Group of answer choices

Which party, the insurer or the insured, enjoys the cash flow benefits of the loss reserves.

The breadth of coverage that is provided.

The period of coverage available under the plan.

Which party, the insurer or the insured, is responsible for claim administration.

In a retrospective rating plan, the minimum and maximum premiums are expressed as a percentage of

Group of answer choices

Manual premium.

Basic premium.

Standard premium.

Converted losses.

Burmese Fencing Company has a significant number of low severity products liability claims. The company is interested in a retrospective rating plan for its liability coverage. The following information applies:

• Burmeses sales for the previous year were $1,000,000.
• The manual rate for liability coverage is $0.76 per $100 of sales.
• Burmeses experience modifier is 1.20.
• The basic premium is 60% of the standard premium.
• The loss conversion factor is 1.10.
• The excess loss premium factor is 5% of the standard premium.
• The tax multiplier is 1.04.
• The maximum premium is 175% of the standard premium.
• The minimum premium is 50% of the standard premium.

What is the basic premium for Burmese Fencing Company?

Group of answer choices

$5,472

$4,560

$11,500

$9,120

An advantage of a large deductible plan is that it allows the insured organization to

Group of answer choices

Benefit from the cash flow available on the retained loss reserves.

Benefit from handling its own claims without insurer control.

Decrease its uncertainty about the cost of its retained losses.

Increase its cost of risk compared with other insurance plans.

The major purpose of a self-insurance plan is to

Group of answer choices

Help the organization achieve a lower cost of risk by paying for its own losses and avoiding risk transfer costs.

Take advantage of the favorable tax treatment of self-insured plans compared to purchasing traditional insurance.

Allow an organization to take advantage of the full range of services a private insurance company offers.

Help the organization avoid liability for losses by shifting the losses to an entity better positioned to pay the losses.

A group self-insurance plan operates like an insurer in that it

Group of answer choices

Files annual statements in the format prescribed by state insurance departments.

Is subject to the same regulatory requirements as an insurer.

Pools the loss exposures of its members.

Can insure most loss exposures, including auto and general liability exposures.

A captive insurer

Group of answer choices

Collects premiums, issues policies, and pays covered losses.

Usually insures medium to high severity of losses.

Acts as any other insurer but does not fund losses.

Does not have substantial administrative requirements.