Author Question: According to the law of large numbers, what should happen as an insurance company increases the ... (Read 306 times)

Cooldude101 · **on:** Jul 11, 2018

According to the law of large numbers, what should happen as an insurance company increases the number of loss exposures that it insures?

A) Fewer losses should be expected to occur.
B) The amount of premiums needed to cover losses should decrease.
C) The volatility of the insurance company's underwriting results should increase.
D) The difference between actual and expected results should decrease.

Question 2

Which of the following statements regarding insurance and hedging is (are) true?

I. Insurance involves the transfer of an insurable risk while hedging handles risk that is typically uninsurable.
II. Insurance transactions can reduce objective risk, while hedging typically involves only risk transfer and not risk reduction.
A) I only
B) II only
C) both I and II
D) neither I nor II