Question 1

Life insurance companies tend to concentrate their investments at the longer term of the investment spectrum.

Accepted Answer

A) True 
 B)False

Question 2

State-sponsored insurance guarantee funds are run and administered by private insurance companies operating in the state.

Accepted Answer

A) True 
 B)False

Question 3

During the most recent financial crisis, life insurance companies with large proportions of separate accounts business were well-protected from the decline in the debt and equity markets.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following are not a type of property-casualty insurance?

Accepted Answer

A) personal liability insurance 
B) fire insurance 
C) homeowner's multiple-peril insurance 
D) commercial multiple peril insurance 
E) automobile liability and physical damage insurance 
A) personal liability insurance 
B) fire insurance 
C) homeowner's multiple-peril insurance 
D) commercial multiple peril insurance 
E) automobile liability and physical damage insurance

Question 5

Calculate the annual cash flows of a $2 million, 10-year fixed-payment deferred annuity earning a guaranteed 8 percent per year if annual payments are to begin at the end of the sixth (6th) year.

Accepted Answer

A) $218,973.21. 
B) $202,752.97. 
C) $343,321.86. 
D) $405,505.95. 
E) $437,946.42. 
A) $218,973.21. 
B) $202,752.97. 
C) $343,321.86. 
D) $405,505.95. 
E) $437,946.42.

Question 6

Property-casualty insurers tend to have a higher level of liquidity risk than life insurers.

Accepted Answer

A) True 
 B)False

Question 7

The largest property-casualty (PC) insurance companies have become less influential over the past decade.

Accepted Answer

A) True 
 B)False

Question 8

In general, maximum levels of losses in the property-casualty industry are more predictable for liability lines than for property lines.

Accepted Answer

A) True 
 B)False

Question 9

Industry leaders appear to be increasing their share of the PC business over time.

Accepted Answer

A) True 
 B)False

Question 10

Adverse selection is a situation where customers who most need insurance are more likely to apply for insurance.

Accepted Answer

A) True 
 B)False

Question 11

The operating ratio for a PC insurer equals

Accepted Answer

A) loss ratio plus the ratios of loss adjustment expenses to premiums earned. 
B) loss ratio plus expense ratio plus dividend ratio. 
C) combined ratio minus dividends paid to policyholders. 
D) acquisition costs plus dividends paid as a proportion of premiums earned. 
E) combined ratio after dividends minus the investment yield. 
A) loss ratio plus the ratios of loss adjustment expenses to premiums earned. 
B) loss ratio plus expense ratio plus dividend ratio. 
C) combined ratio minus dividends paid to policyholders. 
D) acquisition costs plus dividends paid as a proportion of premiums earned. 
E) combined ratio after dividends minus the investment yield.

Question 12

Property-casualty underwriting risk only exists when the premiums generated on a given insurance line are less than the claims (losses) on the line.

Accepted Answer

A) True 
 B)False

Question 13

Separate accounts business only appears as a liability on a life insurer's balance sheet.

Accepted Answer

A) True 
 B)False

Question 14

As of 2015, there were less than 900 life insurance companies and aggregate industry assets were approximately $6.5 trillion.

Accepted Answer

A) True 
 B)False

Question 15

The largest liability on property-casualty insurers' balance sheet as of 2015 was

Accepted Answer

A) loss reserve and loss adjustment expenses. 
B) unearned premiums. 
C) cash. 
D) policyholder surplus. 
E) conditional reserve funds. 
A) loss reserve and loss adjustment expenses. 
B) unearned premiums. 
C) cash. 
D) policyholder surplus. 
E) conditional reserve funds.

Question 16

What is essentially understood to be insurance for property-casualty insurance companies?

Accepted Answer

A) Policy reserves. 
B) Conditional reserve funds. 
C) Reinsurance. 
D) Unearned premiums. 
E) Surplus notes. 
A) Policy reserves. 
B) Conditional reserve funds. 
C) Reinsurance. 
D) Unearned premiums. 
E) Surplus notes.

Question 17

The Wall Street Reform and Consumer Protection Act (2010) led to the Federal Reserve becoming a major supervisor of insurance firms.

Accepted Answer

A) True 
 B)False

Question 18

If the loss ratio on a line of insurance is 70 percent and loss adjustment expenses are 33 percent, then the line is profitable before dividends if the ratio of

Accepted Answer

A) commissions and other expenses are 15 percent and investment yields are 10 percent. 
B) commissions and other expenses are 5 percent and investment yields are 6 percent. 
C) commissions and other expenses are 16 percent and investment yields are 20 percent 
D) commissions and other expenses are 15 percent and investment yields are 12 percent. 
E) commissions and other expenses are 6 percent and investment yields are 4 percent. 
A) commissions and other expenses are 15 percent and investment yields are 10 percent. 
B) commissions and other expenses are 5 percent and investment yields are 6 percent. 
C) commissions and other expenses are 16 percent and investment yields are 20 percent 
D) commissions and other expenses are 15 percent and investment yields are 12 percent. 
E) commissions and other expenses are 6 percent and investment yields are 4 percent.

Question 19

PC (property-casualty) insurers tend to offer products that combine features of property insurance and liability insurance into single policy packages.

Accepted Answer

A) True 
 B)False

Question 20

Annuities are popular retirement savings products because investment returns on contributions are tax-deferred.

Accepted Answer

A) True 
 B)False

Exam 6: Financial Services: Insurance

Life insurance companies tend to concentrate their investments at the longer term of the investment spectrum.

State-sponsored insurance guarantee funds are run and administered by private insurance companies operating in the state.

During the most recent financial crisis, life insurance companies with large proportions of separate accounts business were well-protected from the decline in the debt and equity markets.

Which of the following are not a type of property-casualty insurance?

Calculate the annual cash flows of a $2 million, 10-year fixed-payment deferred annuity earning a guaranteed 8 percent per year if annual payments are to begin at the end of the sixth (6th) year.

Property-casualty insurers tend to have a higher level of liquidity risk than life insurers.

The largest property-casualty (PC) insurance companies have become less influential over the past decade.

In general, maximum levels of losses in the property-casualty industry are more predictable for liability lines than for property lines.

Industry leaders appear to be increasing their share of the PC business over time.

Adverse selection is a situation where customers who most need insurance are more likely to apply for insurance.

The operating ratio for a PC insurer equals

Property-casualty underwriting risk only exists when the premiums generated on a given insurance line are less than the claims (losses) on the line.

Separate accounts business only appears as a liability on a life insurer's balance sheet.

As of 2015, there were less than 900 life insurance companies and aggregate industry assets were approximately $6.5 trillion.

The largest liability on property-casualty insurers' balance sheet as of 2015 was

What is essentially understood to be insurance for property-casualty insurance companies?

The Wall Street Reform and Consumer Protection Act (2010) led to the Federal Reserve becoming a major supervisor of insurance firms.

If the loss ratio on a line of insurance is 70 percent and loss adjustment expenses are 33 percent, then the line is profitable before dividends if the ratio of

PC (property-casualty) insurers tend to offer products that combine features of property insurance and liability insurance into single policy packages.

Annuities are popular retirement savings products because investment returns on contributions are tax-deferred.

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

Calculate the annual cash flows of a $2 million, 10-year fixed-payment deferred annuity earning a guaranteed 8 percent per year if annual payments are to begin at the end of the sixth (6^th) year.