What measure the amounts at risk in a book of business?

Question

Options

• APolicy limits
• BExposure bases
• CLine of business
• DUnderwriting cycle

• A
  9% (3)
• B
  82% (27)
• C
  6% (2)
• D
  3% (1)

Explanation

Exposure bases quantify the units of risk underlying a book of business - for example, car-years in auto insurance, payroll dollars in workers' compensation, or occupied bed-days in medical malpractice. They are the fundamental yardstick actuaries use to measure how much risk an insurer has taken on, making them the direct answer to "how much is at risk."

Policy limits (A) cap the maximum payout per claim, which bounds liability on individual policies but does not measure the overall volume of risk across the book. Line of business (C) is simply a classification category (e.g., auto, property, liability) describing what is written, not how much is at risk. Underwriting cycle (D) describes the market's cyclical swings between hard and soft pricing conditions - a macroeconomic pattern, not a risk measurement tool.

Memory tip: Think of the word "exposure" literally - it's how much the insurer is exposed to loss. More exposure units = more skin in the game. Whenever a question asks about measuring amounts of risk, anchor on exposure bases as your first instinct.

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