Question 1

For property-casualty insurers, losses are higher for lines that are exposed to

Accepted Answer

A) long tails and low inflation. 
B) long tails and high inflation. 
C) short tails and low inflation. 
D) short tails and high inflation. 
E) short tails and no inflation. 
A) long tails and low inflation. 
B) long tails and high inflation. 
C) short tails and low inflation. 
D) short tails and high inflation. 
E) short tails and no inflation.

Question 2

A permanent guarantee fund for the insurance industry does not exist.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is an advantage of converting from a mutual insurance company to a stockholder-controlled company?

Accepted Answer

A) Publicly held companies have access to equity markets for additional capital for future business expansion. 
B) Mutual organizations are subject to higher regulatory standards than public companies. 
C) Ability to offer more insurance products than those allowed under mutual ownership. 
D) Publicly held insurance companies can convert to federal charters but mutual organizations cannot. 
E) Mutual organizations can only underwrite policies in the state in which they are chartered while publicly held organizations can expand nationwide. 
A) Publicly held companies have access to equity markets for additional capital for future business expansion. 
B) Mutual organizations are subject to higher regulatory standards than public companies. 
C) Ability to offer more insurance products than those allowed under mutual ownership. 
D) Publicly held insurance companies can convert to federal charters but mutual organizations cannot. 
E) Mutual organizations can only underwrite policies in the state in which they are chartered while publicly held organizations can expand nationwide.

Question 4

In recent years, the total assets of insurance companies in the U.S.have been decreasing.

Accepted Answer

A) True 
 B)False

Question 5

Which account refers to the reserve set-aside that contains the portion of a premium that has been paid before insurance coverage has been provided?

Accepted Answer

A) Unearned premiums. 
B) Prepaid premiums. 
C) Premium reserves. 
D) Policy reserves. 
E) Outstanding premiums. 
A) Unearned premiums. 
B) Prepaid premiums. 
C) Premium reserves. 
D) Policy reserves. 
E) Outstanding premiums.

Question 6

The process of life insurance uses risk pooling to transfer income-related uncertainties from a group of individuals to an insured individual.

Accepted Answer

A) True 
 B)False

Question 7

Unexpected increases in inflation cause loss rates to increase more for long-tail risk than for short-tail risks.

Accepted Answer

A) True 
 B)False

Question 8

Credit default swaps are a product offered by insurance companies.

Accepted Answer

A) True 
 B)False

Question 9

Insurance guarantee funds are administered by federal insurance regulators.

Accepted Answer

A) True 
 B)False

Question 10

If losses on a particular line of medical malpractice insurance were $650 million and premiums earned were $575 million, the loss ratio would be

Accepted Answer

A) 1.13 implying that this line of insurance is profitable. 
B) 1.13 implying that this line of insurance is unprofitable. 
C) 0.88 implying that this line of insurance is profitable. 
D) 0.88 implying that this line of insurance is unprofitable. 
E) -$75 million implying that this line of insurance is unprofitable. 
A) 1.13 implying that this line of insurance is profitable. 
B) 1.13 implying that this line of insurance is unprofitable. 
C) 0.88 implying that this line of insurance is profitable. 
D) 0.88 implying that this line of insurance is unprofitable. 
E) -$75 million implying that this line of insurance is unprofitable.

Question 11

The cash surrender value of a life insurance policy represents the payment to the insured's beneficiaries at the time of death.

Accepted Answer

A) True 
 B)False

Question 12

In the case of an insurance company failure, policyholders immediately receive a payout of the cash surrender value of their policies.

Accepted Answer

A) True 
 B)False

Question 13

An insurance policy that often is the least expensive to the insured because of the policy does not include a savings plan 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 14

Term life insurance includes a savings element as well as the pure insurance element.

Accepted Answer

A) True 
 B)False

Question 15

Guaranteed investment contracts (GICs) offered by a life insurance company

Accepted Answer

A) are endowment life policies marketed to group insurance policyholders. 
B) are short- and medium-term debt instruments sold to fund their pension plan business. 
C) can only be purchased by a group life insurance plan. 
D) earn a return based on the consumer price index (CPI). 
E) Short- and medium-term investments in venture capital firms. 
A) are endowment life policies marketed to group insurance policyholders. 
B) are short- and medium-term debt instruments sold to fund their pension plan business. 
C) can only be purchased by a group life insurance plan. 
D) earn a return based on the consumer price index (CPI). 
E) Short- and medium-term investments in venture capital firms.

Question 16

The two policy categories offered by property-casualty insurers that are most likely to be subject to rate regulation are

Accepted Answer

A) auto insurance and worker's compensation. 
B) homeowner multiple peril and commercial multiple peril. 
C) earthquake and flood. 
D) surety bonds and financial guaranty. 
E) product liability and farm owner multiple peril. 
A) auto insurance and worker's compensation. 
B) homeowner multiple peril and commercial multiple peril. 
C) earthquake and flood. 
D) surety bonds and financial guaranty. 
E) product liability and farm owner multiple peril.

Question 17

Annuities must be purchased using a single lump sum of money.

Accepted Answer

A) True 
 B)False

Question 18

As currently structured, contributions to a state-sponsored guarantee fund are collected only after the actual failure of an insurance company.

Accepted Answer

A) True 
 B)False

Question 19

An operating ratio greater than 100 indicates that the insurance product line was profitable for a giving year.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements regarding catastrophe bonds is not true?

Accepted Answer

A) The yields are higher than traditional bonds like treasuries. 
B) The yields are higher than asset-backed securities and commercial mortgage-backed securities. 
C) There currently do not exist any potential challenges to the catastrophe bonds market. 
D) Institutional investors are particularly interested in catastrophe bonds because of their portfolio diversification benefits. 
E) Catastrophic property damage risks do not correlate with the risks of other asset classes. 
A) The yields are higher than traditional bonds like treasuries. 
B) The yields are higher than asset-backed securities and commercial mortgage-backed securities. 
C) There currently do not exist any potential challenges to the catastrophe bonds market. 
D) Institutional investors are particularly interested in catastrophe bonds because of their portfolio diversification benefits. 
E) Catastrophic property damage risks do not correlate with the risks of other asset classes.

Exam 6: Financial Services: Insurance

For property-casualty insurers, losses are higher for lines that are exposed to

A permanent guarantee fund for the insurance industry does not exist.

Which of the following is an advantage of converting from a mutual insurance company to a stockholder-controlled company?

In recent years, the total assets of insurance companies in the U.S.have been decreasing.

Which account refers to the reserve set-aside that contains the portion of a premium that has been paid before insurance coverage has been provided?

The process of life insurance uses risk pooling to transfer income-related uncertainties from a group of individuals to an insured individual.

Unexpected increases in inflation cause loss rates to increase more for long-tail risk than for short-tail risks.

Credit default swaps are a product offered by insurance companies.

Insurance guarantee funds are administered by federal insurance regulators.

If losses on a particular line of medical malpractice insurance were $650 million and premiums earned were $575 million, the loss ratio would be

The cash surrender value of a life insurance policy represents the payment to the insured's beneficiaries at the time of death.

In the case of an insurance company failure, policyholders immediately receive a payout of the cash surrender value of their policies.

An insurance policy that often is the least expensive to the insured because of the policy does not include a savings plan is called

Term life insurance includes a savings element as well as the pure insurance element.

Guaranteed investment contracts (GICs) offered by a life insurance company

The two policy categories offered by property-casualty insurers that are most likely to be subject to rate regulation are

Annuities must be purchased using a single lump sum of money.

As currently structured, contributions to a state-sponsored guarantee fund are collected only after the actual failure of an insurance company.

An operating ratio greater than 100 indicates that the insurance product line was profitable for a giving year.

Which of the following statements regarding catastrophe bonds is not true?

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