Question 1

What is demutualization? What are some reasons companies want to demutualize?

Accepted Answer

Demutualization is the process of changing a mutual organization to the stock form. Some mutuals want to change to the stock form in order to raise funds in the capital markets and become more globally competitive. Mutuals are only able to grow through additions to surplus through operations and this is seen as a great impediment to competitive growth. Finally, the Gramm-Leach-Bliley Act of 1999 gave mutuals an incentive to convert to stock ownership, since they can then more easily be acquired by other firms.

Question 2

Lloyd's of London:

Accepted Answer

A)  is an unincorporated, not-for-profit insurer 
B)  is partly a mutual company and partly a stock company 
C)  sells mainly homeowners insurance to residents of London 
D)  operates in the surplus lines and marine insurance markets 
A)  is an unincorporated, not-for-profit insurer 
B)  is partly a mutual company and partly a stock company 
C)  sells mainly homeowners insurance to residents of London 
D)  operates in the surplus lines and marine insurance markets D

Question 3

Which of the following statements is correct?

Accepted Answer

A)  Net Premiums Written by Life-Health Insurers have decreased between 1998 and 2008. 
B)  Net Premiums Written by Property-Liability Insurers have stayed basically the same between 1998 and 2008. 
C)  Net Premiums Written by Life-Health Insurers were higher than those written by Property-Liability Insurers in 1998. 
D)  Net Premiums Written by Life-Health Insurers were lower than those written by Property-Liability Insurers in 2008. 
A)  Net Premiums Written by Life-Health Insurers have decreased between 1998 and 2008. 
B)  Net Premiums Written by Property-Liability Insurers have stayed basically the same between 1998 and 2008. 
C)  Net Premiums Written by Life-Health Insurers were higher than those written by Property-Liability Insurers in 1998. 
D)  Net Premiums Written by Life-Health Insurers were lower than those written by Property-Liability Insurers in 2008. C

Question 4

A mutual insurer:

Accepted Answer

A)  is not a corporation 
B)  is run by an attorney-in-fact 
C)  is legally a nonprofit organization 
D)  technically is a charitable organization 
A)  is not a corporation 
B)  is run by an attorney-in-fact 
C)  is legally a nonprofit organization 
D)  technically is a charitable organization

Question 5

How do a reciprocal exchange and a mutual insurance company differ?

Accepted Answer

A reciprocal exchange is similar to a mu

Question 6

The use of an applicant's personal opinions by underwriters for rating criteria directly violates which guiding principle of underwriting?

Accepted Answer

A)  Separation and class homogeneity 
B)  Reliability 
C)  Incentive value 
D)  Social acceptability 
A)  Separation and class homogeneity 
B)  Reliability 
C)  Incentive value 
D)  Social acceptability

Question 7

If you were a life insurance underwriter, asking which of the following underwriting questions would probably be socially unacceptable to an insurance applicant?

Accepted Answer

A)  Have you ever tested positive for HIV? 
B)  Have you smoked any tobacco products within the last year? 
C)  Are you heterosexual, homosexual, or bisexual? 
D)  Have you traveled to a foreign country within the last ten years? 
A)  Have you ever tested positive for HIV? 
B)  Have you smoked any tobacco products within the last year? 
C)  Are you heterosexual, homosexual, or bisexual? 
D)  Have you traveled to a foreign country within the last ten years?

Question 8

Assessment mutuals:

Accepted Answer

A)  primarily provide fire and windstorm coverage for small towns and farmers 
B)  do a lot more business than advance premium mutuals 
C)  do about the same amount of business as advance premium mutuals 
D)  are shareholder owned 
A)  primarily provide fire and windstorm coverage for small towns and farmers 
B)  do a lot more business than advance premium mutuals 
C)  do about the same amount of business as advance premium mutuals 
D)  are shareholder owned

Question 9

To obtain a right of ownership in a stock insurance company, you should contact:

Accepted Answer

A)  an independent agent 
B)  a direct writer 
C)  a securities dealer 
D)  the insurance commissioner 
A)  an independent agent 
B)  a direct writer 
C)  a securities dealer 
D)  the insurance commissioner

Question 10

In which of the following insurance pools would there be no subsidization?

Accepted Answer

A)  Fire insurance 
B)  Life insurance 
C)  Automobile insurance 
D)  There would be subsidization in all of these pools. 
A)  Fire insurance 
B)  Life insurance 
C)  Automobile insurance 
D)  There would be subsidization in all of these pools.

Question 11

In general, all of the following statements about Lloyd's of London are true except:

Accepted Answer

A)  members have unlimited personal liability 
B)  individual members ("names") cooperate in groups known as syndicates 
C)  if a syndicate is unable to pay its portion of a loss, the insured has the right to collect that unpaid portion from Lloyd's of London 
D)  Lloyd's is not as preeminent in the insurance marketplace today as it once was 
A)  members have unlimited personal liability 
B)  individual members ("names") cooperate in groups known as syndicates 
C)  if a syndicate is unable to pay its portion of a loss, the insured has the right to collect that unpaid portion from Lloyd's of London 
D)  Lloyd's is not as preeminent in the insurance marketplace today as it once was

Question 12

Dividends from mutual insurers are not subject to federal income tax.

Accepted Answer

A) True 
 B)False

Question 13

The insurer's efficiency and underwriting practices are much more important to the consumer than the insurer's legal form of organization.

Accepted Answer

A) True 
 B)False

Question 14

Earthquake insurance:

Accepted Answer

A)  is provided too cheaply by insurance companies 
B)  typically costs $1 per $20,000 protection 
C)  is sold in only a limited number of geographical markets 
D)  is bought by Californians only 
A)  is provided too cheaply by insurance companies 
B)  typically costs $1 per $20,000 protection 
C)  is sold in only a limited number of geographical markets 
D)  is bought by Californians only

Question 15

To own a part of a stock insurance company, a person must purchase an insurance policy from that company.

Accepted Answer

A) True 
 B)False

Question 16

The term "demutualization" refers to:

Accepted Answer

A)  the process of a stock insurer converting its organizational structure to mutual 
B)  the board of directors' action in declaring dividends for the policy owners 
C)  the process of a mutual insurer converting its organizational structure to the stock form 
D)  the process of liquidating an insolvent mutual insurance company 
A)  the process of a stock insurer converting its organizational structure to mutual 
B)  the board of directors' action in declaring dividends for the policy owners 
C)  the process of a mutual insurer converting its organizational structure to the stock form 
D)  the process of liquidating an insolvent mutual insurance company

Question 17

Which of the following statements about the insurer death spiral is correct?

Accepted Answer

A)  The insurance pool is shrinking to those who really need insurance. 
B)  The government has enacted laws to prevent the death spiral. 
C)  The insurance pool is shrinking to those who are facing low risk. 
D)  The insurance premium that needs to be paid is minimized. 
A)  The insurance pool is shrinking to those who really need insurance. 
B)  The government has enacted laws to prevent the death spiral. 
C)  The insurance pool is shrinking to those who are facing low risk. 
D)  The insurance premium that needs to be paid is minimized.

Question 18

Reciprocal exchanges provide a considerable amount of automobile insurance.

Accepted Answer

A) True 
 B)False

Question 19

In an insurer death spiral only people who do not really need insurance purchase it.

Accepted Answer

A) True 
 B)False

Question 20

Stock insurers:

Accepted Answer

A)  are unincorporated 
B)  only sell property and liability insurance 
C)  cannot sell automobile insurance 
D)  are organized as profit-making ventures 
A)  are unincorporated 
B)  only sell property and liability insurance 
C)  cannot sell automobile insurance 
D)  are organized as profit-making ventures

Exam 7: Insurable Perils and Insuring Organizations

What is demutualization? What are some reasons companies want to demutualize?

Lloyd's of London:

Which of the following statements is correct?

A mutual insurer:

How do a reciprocal exchange and a mutual insurance company differ?

The use of an applicant's personal opinions by underwriters for rating criteria directly violates which guiding principle of underwriting?

If you were a life insurance underwriter, asking which of the following underwriting questions would probably be socially unacceptable to an insurance applicant?

Assessment mutuals:

To obtain a right of ownership in a stock insurance company, you should contact:

In which of the following insurance pools would there be no subsidization?

In general, all of the following statements about Lloyd's of London are true except:

Dividends from mutual insurers are not subject to federal income tax.

The insurer's efficiency and underwriting practices are much more important to the consumer than the insurer's legal form of organization.

Earthquake insurance:

To own a part of a stock insurance company, a person must purchase an insurance policy from that company.

The term "demutualization" refers to:

Which of the following statements about the insurer death spiral is correct?

Reciprocal exchanges provide a considerable amount of automobile insurance.

In an insurer death spiral only people who do not really need insurance purchase it.

Stock insurers:

Introduction to Enterprise Risk Management and Insurance

Risk Identification

Risk Assessment and Pooling

Risk-Handling Techniques: Loss Control, Risk Transfer, and Loss Financing

Risk-Handling Techniques: Diversification and Hedging

Fundamentals of Insurance

Insurance Functions

Insurance Markets: Economics and Issues

Insurance Regulation

Insurance Contracts

The Personal Auto Policy

Homeowners Insurance

Professional Financial Planning

Life Insurance Policies

Standard Life Insurance Contract Provisions and Options

Annuities

Health Insurance and Disability Income

Employee Benefits

Social Security

Unemployment and Workers Compensation Insurance

Commercial Property Insurance

Commercial Liability Insurance

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