Question 1

Adverse selection cannot be reduced by insurance companies so it is considered to be a cost of doing business.

Accepted Answer

A) True 
 B)False  False

Question 2

As of 2015, the primary regulator of both the life and property-casualty insurance industry is/are the

Accepted Answer

A) state insurance commissions. 
B) NAIC. 
C) Federal Reserve. 
D) IRIS. 
E) new federal oversight commission yet to be named. 
A) state insurance commissions. 
B) NAIC. 
C) Federal Reserve. 
D) IRIS. 
E) new federal oversight commission yet to be named. A

Question 3

Insurance policy benefits are classified on an insurance company's balance sheet as

Accepted Answer

A) liabilities, because the insurance company may have to pay out the benefits. 
B) assets, because policy benefits are valuable to the company. 
C) liabilities, because customers may fall behind on their premium payments. 
D) assets, because policy benefits are fully covered by premium payments. 
E) liabilities, because insurance companies must maintain a capital base to cover the payments of benefits. 
A) liabilities, because the insurance company may have to pay out the benefits. 
B) assets, because policy benefits are valuable to the company. 
C) liabilities, because customers may fall behind on their premium payments. 
D) assets, because policy benefits are fully covered by premium payments. 
E) liabilities, because insurance companies must maintain a capital base to cover the payments of benefits. A

Question 4

Variable universal life insurance policies

Accepted Answer

A) have fixed premiums and a fixed benefit payout. 
B) have fixed premiums, but allow the benefit payout to vary with investment returns. 
C) have a fixed benefit payout, but allow the premium to vary with investment returns. 
D) allow both the premium and benefit payout to vary with investment returns. 
E) allow both the premium and benefit payout to vary with investment returns, but have a fixed maturity date. 
A) have fixed premiums and a fixed benefit payout. 
B) have fixed premiums, but allow the benefit payout to vary with investment returns. 
C) have a fixed benefit payout, but allow the premium to vary with investment returns. 
D) allow both the premium and benefit payout to vary with investment returns. 
E) allow both the premium and benefit payout to vary with investment returns, but have a fixed maturity date.

Question 5

As currently structured, state guarantee funds will continue to collect premium payments and honor life policies and annuity obligations of a failed insurance company.

Accepted Answer

A) True 
 B)False

Question 6

The largest liability category on the balance sheet of U.S.life insurance companies as of 2015 was

Accepted Answer

A) net policy reserves. 
B) policy claims. 
C) premium and deposit funds. 
D) commission, taxes and expenses. 
E) capital surplus. 
A) net policy reserves. 
B) policy claims. 
C) premium and deposit funds. 
D) commission, taxes and expenses. 
E) capital surplus.

Question 7

The Insurance Regulatory Information System (IRIS) is a standardized examination system used to measure the profitability of insurance companies.

Accepted Answer

A) True 
 B)False

Question 8

Property insurance involves coverage against the loss of personal property as well as protection against legal liability claims.

Accepted Answer

A) True 
 B)False

Question 9

Unlike the life insurance industry, property-casualty insurers have more uncertainty about the timing of policy payouts.

Accepted Answer

A) True 
 B)False

Question 10

The surrender value of a policy is the cash value of a policy received from the insurer if a policy holder surrenders the policy after the maturity date.

Accepted Answer

A) True 
 B)False

Question 11

An insurance policy that protects an individual over an entire lifetime as long as the premiums are paid is called

Accepted Answer

A) term life. 
B) universal life. 
C) whole life. 
D) endowment life. 
E) variable life. 
A) term life. 
B) universal life. 
C) whole life. 
D) endowment life. 
E) variable life.

Question 12

Annuities are the reverse of life insurance in that they are different means of liquidating a fund.

Accepted Answer

A) True 
 B)False

Question 13

The property casualty insurance industry is concentrated where a few large firms dominate the market.

Accepted Answer

A) True 
 B)False

Question 14

If losses on a particular line of fire insurance were $430 million, premiums earned were $595 million, and loss adjustment expenses were $95 million, the combined ratio would be

Accepted Answer

A) 0.88 implying that this line of insurance is profitable. 
B) 0.88 implying that this line of insurance is unprofitable. 
C) 1.13 implying that this line of insurance is profitable. 
D) 1.13 implying that this line of insurance is unprofitable. 
E) 0.22 implying that this line of insurance is profitable. 
A) 0.88 implying that this line of insurance is profitable. 
B) 0.88 implying that this line of insurance is unprofitable. 
C) 1.13 implying that this line of insurance is profitable. 
D) 1.13 implying that this line of insurance is unprofitable. 
E) 0.22 implying that this line of insurance is profitable.

Question 15

Pension fund management is a relatively small portion of the life insurance industry.

Accepted Answer

A) True 
 B)False

Question 16

As with the life insurance industry, property-casualty firms tend to invest the majority of their assets and long-term investments.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following did NOT occur in the life insurance industry during the most recent financial crisis?

Accepted Answer

A) Low equity values reduced asset-based fees on separate account assets. 
B) Losses were incurred on holdings of commercial mortgage-backed securities and commercial loans. 
C) Asset-based fees declined on products such as variable annuities and pension fund assets that were tied to equity returns. 
D) Low interest rates and harsh economic conditions caused many policyholders to terminate or surrender their policies. 
E) Historically low interest rates caused increased demand for whole life policies. 
A) Low equity values reduced asset-based fees on separate account assets. 
B) Losses were incurred on holdings of commercial mortgage-backed securities and commercial loans. 
C) Asset-based fees declined on products such as variable annuities and pension fund assets that were tied to equity returns. 
D) Low interest rates and harsh economic conditions caused many policyholders to terminate or surrender their policies. 
E) Historically low interest rates caused increased demand for whole life policies.

Question 18

In group life insurance, lower rates on policies can be offered because of cost economies as a result of mass administration of plans and reduced selling and commission costs.

Accepted Answer

A) True 
 B)False

Question 19

Insurance companies can increase the spread between premium income and policy payouts only by increasing the premium payments.

Accepted Answer

A) True 
 B)False

Question 20

Life insurance protects against morbidity or ill health and health insurance protects against mortality risk and accidents.

Accepted Answer

A) True 
 B)False

Exam 6: Financial Services: Insurance

Adverse selection cannot be reduced by insurance companies so it is considered to be a cost of doing business.

As of 2015, the primary regulator of both the life and property-casualty insurance industry is/are the

Insurance policy benefits are classified on an insurance company's balance sheet as

Variable universal life insurance policies

As currently structured, state guarantee funds will continue to collect premium payments and honor life policies and annuity obligations of a failed insurance company.

The largest liability category on the balance sheet of U.S.life insurance companies as of 2015 was

The Insurance Regulatory Information System (IRIS) is a standardized examination system used to measure the profitability of insurance companies.

Property insurance involves coverage against the loss of personal property as well as protection against legal liability claims.

Unlike the life insurance industry, property-casualty insurers have more uncertainty about the timing of policy payouts.

The surrender value of a policy is the cash value of a policy received from the insurer if a policy holder surrenders the policy after the maturity date.

An insurance policy that protects an individual over an entire lifetime as long as the premiums are paid is called

Annuities are the reverse of life insurance in that they are different means of liquidating a fund.

The property casualty insurance industry is concentrated where a few large firms dominate the market.

If losses on a particular line of fire insurance were $430 million, premiums earned were $595 million, and loss adjustment expenses were $95 million, the combined ratio would be

Pension fund management is a relatively small portion of the life insurance industry.

As with the life insurance industry, property-casualty firms tend to invest the majority of their assets and long-term investments.

Which of the following did NOT occur in the life insurance industry during the most recent financial crisis?

In group life insurance, lower rates on policies can be offered because of cost economies as a result of mass administration of plans and reduced selling and commission costs.

Insurance companies can increase the spread between premium income and policy payouts only by increasing the premium payments.

Life insurance protects against morbidity or ill health and health insurance protects against mortality risk and accidents.

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Brokerage and Investment Banking

Financial Services: Mutual Funds and Hedge Funds

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loan Risk

Credit Risk: Loan Portfolio and Concentration Risk

Liquidity Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Fintech Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Capital Adequacy

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters