Is there a reason why pure risk events, like a hurricane or earthquake, could be bundled into a more general risk portfolio?
A) No, pure risks have too devastating an effect.
B) Yes, since they are negatively correlated with other risk events.
C) No, they are too highly correlated with other risk events.
D) Yes, because an insurer can ask a very high premium for including it in the general risk portfolio.

Question

Quizplus · Accepted Answer

Pure risk events like hurricanes or earthquakes have a low probability of occurrence and a high potential impact. However, they are negatively correlated with other risk events, meaning that they are less likely to occur at the same time as other types of risks, such as fire or theft. Including pure risk events in a broader risk portfolio can help spread the risk and reduce the overall impact of a catastrophic event.

Is There a Reason Why Pure Risk Events, Like a Hurricane