CFA Practice Question

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CFA Practice Question

Self-insurance is a form of ______.

A. risk prevention
B. risk acceptance
C. risk transfer
Correct Answer: B

The organization is still exposed to risk in this case, but with enough capital to cover possible losses.

User Contributed Comments 3

User Comment
ibrahim18 I thought the answer should be C. Risk transfer. Can someone please explain this?
jklaassens Risk transfer is the process of shifting the risk to someone else (e.g. Reinsurance). In the case of self-assurance, they are not aiming to remove the risk, rather "accepting" it and being prepared (by setting aside cash to cover potential loss)
pigletin C is not wrong cuz you literally transfer risk to the capital you put aside in case the bad things happen. the capital can be seen as another party although it is you from you.
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