Alberta General Insurance Level 1 Practice Exam

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What is the maximum single exposure guideline for measuring capacity?

  1. 1% net retention on a single risk

  2. 2% net retention on a single risk

  3. 5% net retention on a single risk

  4. 10% net retention on a single risk

The correct answer is: 2% net retention on a single risk

The maximum single exposure guideline for measuring capacity is 2% net retention on a single risk. This means that the insurer will only cover up to 2% of the risk, and the remaining 98% is the responsibility of the policyholder. Option A and C have a lower maximum exposure guideline, which would mean less coverage for the policyholder. Option D has a higher maximum exposure guideline, which would mean more coverage for the policyholder. However, a 10% net retention on a single risk may be considered too risky for the insurer and could result in higher premiums for the policyholder. Therefore, option B is the optimal balance between coverage and risk for both the insurer and policyholder.

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