Question 1

What does the loss ratio measure in any particular year?

Accepted Answer

A) Payouts on policies to premiums earned. 
B) Amount of premiums earned relative to the payout on policies. 
C) Overall underwriting profitability of a line. 
D) Loss adjustment expenses to premiums earned. 
E) Commission and other acquisition costs to premiums written. 
A) Payouts on policies to premiums earned. 
B) Amount of premiums earned relative to the payout on policies. 
C) Overall underwriting profitability of a line. 
D) Loss adjustment expenses to premiums earned. 
E) Commission and other acquisition costs to premiums written.

Question 2

One reason for the recent decline in the expense ratio for PC insurers is an increase dependence on independent brokers to sell and distribute insurance policies.

Accepted Answer

A) True 
 B)False

Question 3

Unlike the banking industry, globalization of financial services is having little or no effect on the insurance industry.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following observations concerning reinsurance is FALSE?

Accepted Answer

A) It is an alternative to managing risk on a PC insurer's balance sheet. 
B) Non-U.S.reinsurers are majority players in U.S.reinsurance business. 
C) It does not enable the insurer to improve its capital position. 
D) It can be used to limit losses and stabilize cash flows. 
E) It represented 2.3 percent of total PC industry assets in 2015. 
A) It is an alternative to managing risk on a PC insurer's balance sheet. 
B) Non-U.S.reinsurers are majority players in U.S.reinsurance business. 
C) It does not enable the insurer to improve its capital position. 
D) It can be used to limit losses and stabilize cash flows. 
E) It represented 2.3 percent of total PC industry assets in 2015.

Question 5

As of 2015, chartering of life insurance companies can be done only at the state level.

Accepted Answer

A) True 
 B)False

Question 6

PC insurers are forbidden from marketing similar products to both individuals and commercial firms.

Accepted Answer

A) True 
 B)False

Question 7

A reasonable way to overcome some of the risk of adverse selection in the life insurance business can be accomplished by

Accepted Answer

A) refusing to underwrite policies. 
B) industrial life. 
C) endowment life. 
D) variable universal life. 
E) variable life. 
A) refusing to underwrite policies. 
B) industrial life. 
C) endowment life. 
D) variable universal life. 
E) variable life.

Question 8

By regulation, the payments on an annuity contract must stop when the annuity holder dies.

Accepted Answer

A) True 
 B)False

Question 9

Factors that affect the predictability of claims loss exposure include

Accepted Answer

A) unexpected increases in inflation. 
B) the frequency and severity of loss. 
C) the concept of long-tail risk. 
D) property versus liability coverage. 
E) All of the options. 
A) unexpected increases in inflation. 
B) the frequency and severity of loss. 
C) the concept of long-tail risk. 
D) property versus liability coverage. 
E) All of the options.

Question 10

Ordinary life insurance includes term life, whole life and endowment life in addition to the two newer forms like variable life and universal life.

Accepted Answer

A) True 
 B)False

Question 11

Because of the large amounts of policy reserves that life insurance companies carry as liabilities, they are rarely surprised by unexpected fluctuations in expected future payouts.

Accepted Answer

A) True 
 B)False

Question 12

The McCarran-Ferguson Act of 1945 represents legislation confirming the primacy of state over federal regulation of insurance companies.

Accepted Answer

A) True 
 B)False

Question 13

The insurance company that was the largest beneficiary of federal bailout funds during the most recent financial crisis was

Accepted Answer

A) Globe Life. 
B) UBS. 
C) State Farm. 
D) AIG. 
E) New York Life. 
A) Globe Life. 
B) UBS. 
C) State Farm. 
D) AIG. 
E) New York Life.

Question 14

Higher uncertainty of losses forces property-casualty firms to

Accepted Answer

A) invest in more short-term assets than life insurance firms. 
B) invest in more long-term assets than life insurance firms. 
C) hold a lower percentage of capital and reserves than life insurance firms. 
D) invest in riskier equity securities than life insurance firms. 
E) conduct more separate accounts business than life insurance firms. 
A) invest in more short-term assets than life insurance firms. 
B) invest in more long-term assets than life insurance firms. 
C) hold a lower percentage of capital and reserves than life insurance firms. 
D) invest in riskier equity securities than life insurance firms. 
E) conduct more separate accounts business than life insurance firms.

Question 15

A term life policy allows the policyholder to vary the maturity of the policy.

Accepted Answer

A) True 
 B)False

Question 16

The McCarran-Ferguson Act of 1945

Accepted Answer

A) separated commercial banking from insurance activities. 
B) mandated federal insurance company charters. 
C) stipulated that insurance companies are to be regulated at the state level. 
D) initiated a national insurance guaranty fund. 
E) limited insurance company assets to low risk government securities. 
A) separated commercial banking from insurance activities. 
B) mandated federal insurance company charters. 
C) stipulated that insurance companies are to be regulated at the state level. 
D) initiated a national insurance guaranty fund. 
E) limited insurance company assets to low risk government securities.

Question 17

Returns on an insurer's asset portfolio and new premium income flows act as a backup to unexpected policy losses.

Accepted Answer

A) True 
 B)False

Question 18

An insurance policy that allows both the premium amount and the maturity of the life contract to be changed by the insured 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 19

For property-casualty insurers, loss rates are more predictable for

Accepted Answer

A) low-severity high-frequency events. 
B) low-severity low-frequency events. 
C) high-severity high-frequency events. 
D) high severity low-frequency events. 
E) low severity medium-frequency events. 
A) low-severity high-frequency events. 
B) low-severity low-frequency events. 
C) high-severity high-frequency events. 
D) high severity low-frequency events. 
E) low severity medium-frequency events.

Question 20

Due to a recent increase in demand for new insurance products, the number of life insurance companies as been increasing in the United States.

Accepted Answer

A) True 
 B)False

Exam 6: Financial Services: Insurance

What does the loss ratio measure in any particular year?

One reason for the recent decline in the expense ratio for PC insurers is an increase dependence on independent brokers to sell and distribute insurance policies.

Unlike the banking industry, globalization of financial services is having little or no effect on the insurance industry.

Which of the following observations concerning reinsurance is FALSE?

As of 2015, chartering of life insurance companies can be done only at the state level.

PC insurers are forbidden from marketing similar products to both individuals and commercial firms.

A reasonable way to overcome some of the risk of adverse selection in the life insurance business can be accomplished by

By regulation, the payments on an annuity contract must stop when the annuity holder dies.

Factors that affect the predictability of claims loss exposure include

Ordinary life insurance includes term life, whole life and endowment life in addition to the two newer forms like variable life and universal life.

Because of the large amounts of policy reserves that life insurance companies carry as liabilities, they are rarely surprised by unexpected fluctuations in expected future payouts.

The McCarran-Ferguson Act of 1945 represents legislation confirming the primacy of state over federal regulation of insurance companies.

The insurance company that was the largest beneficiary of federal bailout funds during the most recent financial crisis was

Higher uncertainty of losses forces property-casualty firms to

A term life policy allows the policyholder to vary the maturity of the policy.

The McCarran-Ferguson Act of 1945

Returns on an insurer's asset portfolio and new premium income flows act as a backup to unexpected policy losses.

An insurance policy that allows both the premium amount and the maturity of the life contract to be changed by the insured is called

For property-casualty insurers, loss rates are more predictable for

Due to a recent increase in demand for new insurance products, the number of life insurance companies as been increasing in the United States.

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