Skip to content

FRM Part II · FRM Exam Part II · Risk Mitigation

A bank considers shifting part of its cyber risk to a captive insurance subsidiary that reinsures with external markets. Which statement best describes a key consideration for risk mitigation?

The key point is that a captive retains the risk inside the group, so true risk transfer happens only to the extent the captive reinsures externally. It does not remove losses from the consolidated entity, guarantee capital relief, or replace the need for effective controls.

  1. AThe captive eliminates all risk because losses stay within the group
  2. BThe captive retains risk within the group, so economic risk is not transferred unless it is reinsured externallyCorrect
  3. CThe captive guarantees regulatory capital relief for any retained risk
  4. DThe captive removes the need for control improvements

Explanation

A captive keeps risk inside the consolidated group, so the group still bears the losses unless they are ceded to external reinsurers. Capital relief is not guaranteed, and insurance does not replace controls.

Did you get it right without looking?

One question tells you little. A timed set on Risk Mitigation shows your real accuracy, how long you take and where you lose marks.

Practise Risk MitigationFree diagnostic mock

More Risk Mitigation questions