Exam 7: Financial Operations of Insurers

Small Town used to be just that-a small town 6 miles from Large City.Over the years,the area between Small Town and Large City has developed,and now Small Town is part of the suburbs surrounding Large City.An auto insurer that operated in the area had a large increase in auto claims from Small Town insureds.The insurer did not adjust its rates,and this year will lose money because of claims attributable to higher population density.Which business rating objective did this insurer fail to meet?

MedProf Insurance markets medical malpractice insurance.The company's combined ratio in 2009 was 95.4.Its expense ratio was 25.4.What was the company's loss ratio?

Which of the following statements about methods for estimating loss reserves for property and casualty insurers is (are)true? I.The judgment method involves the use of a statutory formula to estimate the loss reserve. II.The average value method is used when the number of claims is large and the claims are settled quickly.

All of the following statements about business objectives in designing a rating system are true EXCEPT

Reasons for the unearned premium reserve include which of the following? I.To pay losses that occur during the policy period. II.To pay premium refunds to policyholders in the event of cancellation.

The expected loss ratio for a class of business is 60 percent.What change would be indicated in the level of rates under the loss ratio method if the actual loss ratio turned out to be 68 percent?

LMN Mutual Insurance Company has total liabilities of $300 million.The company has total assets of $380 million.What is LMN's policyholders' surplus?

Metro City has six different zip codes.XYZ Insurance Company markets coverages in Metro City.Any applicant who lists one particular zip code is automatically quoted a premium that is twenty percent more than the average premium for applicants from the other five zip codes,even if the loss exposure is identical.Which regulatory objective is not being met given XYZ's premium structure?

XYZ Insurance Company uses class rating to determine the rate to charge for insurance.For one type of insurance,the pure premium XYZ actuaries calculated is $75 per unit.If XYZ's expense ratio is 25 percent,what is the gross rate for this coverage?

Which of the following statements is true regarding the financial crisis and the insurance industry? I.The insurance industry is to blame for causing the financial crisis by originating sub-prime mortgage loans. II.Many insurance companies became insolvent as a result of the financial crisis.

One item that appears on an insurance company's financial statements is a liability that represents an estimate of the claims reported and adjusted but not yet paid,claims reported and filed but not yet adjusted,and claims incurred but not yet reported to the company.This liability is called the insurer's

All of the following statements about class rating are true EXCEPT

Under the pure premium method of determining class rates,the gross rate is determined by which of the following formulas?

The unit of measurement used in property and casualty insurance pricing is called the

JKL Insurance Company reported the following information on its accounting statements last year: Premiums Written $90,000,000 Loss Adjustment Expenses $5,000,000 Underwriting Expenses $30,000,000 Premiums Earned $100,000,000 Incurred Losses $70,000,000 What was JKL's combined ratio last year?

A loss reserve established for each individual claim when it is reported to a property and casualty insurance company is call a(n)

All of the following statements about the combined ratio are true EXCEPT

Which of the following statements about experience rating is (are)true? I.The insured's past loss experience is used to determine the premium for the next policy period. II.Its use is generally limited to small firms whose actual experience lacks credibility.

Nathan was hired as an actuary with ABC Insurance.Nathan was asked to calculate the annual premium for a new product and to explain his calculations to ABC's director of ratemaking.Nathan calculated the pure premium and presented this value as the final premium.After Nathan's presentation,the director of ratemaking said,"You left out something very important.If we sell coverage at the pure premium rate,we'll be out of business soon." What did Nathan overlook in his calculations?

XYZ Insurance Company expects $500,000 in claims and loss adjustment expenses for each 1,000 properties that it insures in a certain category of business insurance.What pure premium should XYZ charge for each property insured?