Question 1

Annuities offered by life insurance companies are a financial contract that

Accepted Answer

A) is used to build up a fund. 
B) pays only fixed returns to groups of employees. 
C) is used to liquidate a fund. 
D) pays only variable returns to individuals. 
E) None of the options. 
A) is used to build up a fund. 
B) pays only fixed returns to groups of employees. 
C) is used to liquidate a fund. 
D) pays only variable returns to individuals. 
E) None of the options.

Question 2

The policy reserves on the liability side of the balance sheet of a life insurance company are estimated based on actuarial assumptions of expected future liability commitments on currently existing contracts.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) government securities. 
B) corporate bonds. 
C) corporate stock. 
D) cash. 
E) mortgages. 
A) government securities. 
B) corporate bonds. 
C) corporate stock. 
D) cash. 
E) mortgages.

Question 4

Separate accounts business of a life insurance company represents

Accepted Answer

A) policies written that cover individuals as a group. 
B) liabilities owed to other life insurance companies as a result of reinsurance. 
C) the cumulative cash value paid to policyholders if the policies are terminated before maturity. 
D) a fund established separately from the other funds of the insurance company and invested without regard to the usual diversification restrictions. 
E) the cumulative price that the company may repurchase policies from existing customers. 
A) policies written that cover individuals as a group. 
B) liabilities owed to other life insurance companies as a result of reinsurance. 
C) the cumulative cash value paid to policyholders if the policies are terminated before maturity. 
D) a fund established separately from the other funds of the insurance company and invested without regard to the usual diversification restrictions. 
E) the cumulative price that the company may repurchase policies from existing customers.

Question 5

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

Accepted Answer

A) cash. 
B) bonds. 
C) common stock. 
D) short-term securities. 
E) mortgages and mortgage-backed investments. 
A) cash. 
B) bonds. 
C) common stock. 
D) short-term securities. 
E) mortgages and mortgage-backed investments.

Question 6

Life insurance companies also manage private pension plans that may include guaranteed investment contracts (GICs).

Accepted Answer

A) True 
 B)False

Question 7

The rate of growth in the annuities market is increasing primarily because of the recent changes in the capital gains tax rates.

Accepted Answer

A) True 
 B)False

Question 8

The policyholder can vary the premium payments on an endowment life policy.

Accepted Answer

A) True 
 B)False

Question 9

The primary function of insurance companies is to

Accepted Answer

A) generate fees for the banks that sell insurance products. 
B) sell a variety of consumer investment products. 
C) protect policyholders from adverse events. 
D) assist in the transfer of wealth into the future. 
E) provide contracts that encourage policyholders to save current income. 
A) generate fees for the banks that sell insurance products. 
B) sell a variety of consumer investment products. 
C) protect policyholders from adverse events. 
D) assist in the transfer of wealth into the future. 
E) provide contracts that encourage policyholders to save current income.

Question 10

Which of the following is NOT a possible result when a property-liability company purchases reinsurance?

Accepted Answer

A) improved capital position. 
B) limits on losses on reinsured policies. 
C) stabilized cash flows. 
D) dilution of earnings per share. 
E) All of the options are possible results of purchasing reinsurance. 
A) improved capital position. 
B) limits on losses on reinsured policies. 
C) stabilized cash flows. 
D) dilution of earnings per share. 
E) All of the options are possible results of purchasing reinsurance.

Question 11

The surrender value of an insurance policy is

Accepted Answer

A) the expected payment commitment on existing policy contracts. 
B) a fund established and held separately from the company's other assets. 
C) the cash value paid to the policyholder if the policy is terminated before it matures. 
D) the same as the endowment payout. 
E) the price at which the company may repurchase the policy. 
A) the expected payment commitment on existing policy contracts. 
B) a fund established and held separately from the company's other assets. 
C) the cash value paid to the policyholder if the policy is terminated before it matures. 
D) the same as the endowment payout. 
E) the price at which the company may repurchase the policy.

Question 12

Separate accounts business represents those policies and annuities whose return or payout is dependent on the return earned on the premiums invested in the separate account.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following arises in policies in which the insured event occurs during a coverage period but a claim is not filed or reported until many years later?

Accepted Answer

A) Short-tail losses. 
B) Adverse selection. 
C) Moral hazard. 
D) Long-tail losses. 
E) Social inflation. 
A) Short-tail losses. 
B) Adverse selection. 
C) Moral hazard. 
D) Long-tail losses. 
E) Social inflation.

Question 14

Calculate the annual cash flows of a $2 million, 10-year fixed-payment annuity earning a guaranteed 8 percent annually if the payments are to start at the end of this year.

Accepted Answer

A) $137,990.27. 
B) $275,980.53. 
C) $298,058.98. 
D) $149,029.49. 
E) $220,000.00. 
A) $137,990.27. 
B) $275,980.53. 
C) $298,058.98. 
D) $149,029.49. 
E) $220,000.00.

Question 15

The policy that will pay a specific dollar benefit to beneficiaries and remains in effect as long as premiums are paid is called whole life.

Accepted Answer

A) True 
 B)False

Question 16

Property-casualty insurance involves

Accepted Answer

A) insurance coverage related to the loss of real and personal property. 
B) insurance protection against legal liability exposure. 
C) insurance protection against injuries in employment related work. 
D) insurance coverage related to the loss of real and personal property and insurance protection against legal liability exposure. 
E) insurance coverage related to the loss of real and personal property and insurance protection against injuries in employment related work. 
A) insurance coverage related to the loss of real and personal property. 
B) insurance protection against legal liability exposure. 
C) insurance protection against injuries in employment related work. 
D) insurance coverage related to the loss of real and personal property and insurance protection against legal liability exposure. 
E) insurance coverage related to the loss of real and personal property and insurance protection against injuries in employment related work.

Question 17

Employers that sponsor non-contributory group life insurance require the employee to pay the insurance premiums.

Accepted Answer

A) True 
 B)False

Question 18

Automobile liability insurance provides protection against theft or damage to the vehicle.

Accepted Answer

A) True 
 B)False

Question 19

You start an annuity with $1million and expect to receive 12 equal payments beginning at the end of the first year.The guaranteed annual interest rate is 6 percent.The annual payments that you expect to collect are

Accepted Answer

A) $88,333.33. 
B) $119,277.03. 
C) $59,638.51. 
D) $56,262.75. 
E) $112,525.50. 
A) $88,333.33. 
B) $119,277.03. 
C) $59,638.51. 
D) $56,262.75. 
E) $112,525.50.

Question 20

The benefit payment of a credit life policy usually varies based on the outstanding principal and interest of the loan it is intended to insure.

Accepted Answer

A) True 
 B)False

Exam 6: Financial Services: Insurance

Annuities offered by life insurance companies are a financial contract that

The policy reserves on the liability side of the balance sheet of a life insurance company are estimated based on actuarial assumptions of expected future liability commitments on currently existing contracts.

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

Separate accounts business of a life insurance company represents

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

Life insurance companies also manage private pension plans that may include guaranteed investment contracts (GICs).

The rate of growth in the annuities market is increasing primarily because of the recent changes in the capital gains tax rates.

The policyholder can vary the premium payments on an endowment life policy.

The primary function of insurance companies is to

Which of the following is NOT a possible result when a property-liability company purchases reinsurance?

The surrender value of an insurance policy is

Separate accounts business represents those policies and annuities whose return or payout is dependent on the return earned on the premiums invested in the separate account.

Which of the following arises in policies in which the insured event occurs during a coverage period but a claim is not filed or reported until many years later?

Calculate the annual cash flows of a $2 million, 10-year fixed-payment annuity earning a guaranteed 8 percent annually if the payments are to start at the end of this year.

The policy that will pay a specific dollar benefit to beneficiaries and remains in effect as long as premiums are paid is called whole life.

Property-casualty insurance involves

Employers that sponsor non-contributory group life insurance require the employee to pay the insurance premiums.

Automobile liability insurance provides protection against theft or damage to the vehicle.

You start an annuity with $1million and expect to receive 12 equal payments beginning at the end of the first year.The guaranteed annual interest rate is 6 percent.The annual payments that you expect to collect are

The benefit payment of a credit life policy usually varies based on the outstanding principal and interest of the loan it is intended to insure.

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

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