Question 1

A life insurer's policy reserve equals the difference between the mathematical liability of a future death claim and the value of:

Accepted Answer

A)  future premiums the insured will have to refund to its policyholders 
B)  future premiums the insured will pay the insurer 
C)  future investment earnings on premiums the insured will pay the insurer 
D)  all present death claims 
A)  future premiums the insured will have to refund to its policyholders 
B)  future premiums the insured will pay the insurer 
C)  future investment earnings on premiums the insured will pay the insurer 
D)  all present death claims

Question 2

Insurance regulations require legal reserves and surplus because:

Accepted Answer

A)  assets have to equal liabilities plus owners' equity 
B)  reserves are long-term obligations and must be met with long-term assets 
C)  they provide a cushion against bad underwriting and investment results 
D)  insurers must pre-fund all agent's commissions and underwriting expenses 
A)  assets have to equal liabilities plus owners' equity 
B)  reserves are long-term obligations and must be met with long-term assets 
C)  they provide a cushion against bad underwriting and investment results 
D)  insurers must pre-fund all agent's commissions and underwriting expenses

Question 3

Explain briefly the purpose of the McCarran Act.

Accepted Answer

The McCarran-Ferguson Act was passed in

Question 4

Different prices for identical goods is one sign of a market that has uninformed buyers.

Accepted Answer

A) True 
 B)False

Question 5

What is the purpose of the interest maintenance reserve?

Accepted Answer

A)  To absorb losses arising from sales of assets for less than their cost (capital losses) 
B)  To absorb losses arising from the insolvency of debtors (credit losses) 
C)  To absorb losses caused by changes (increases) in interest rates on government securities 
D)  To absorb losses caused by guaranty fund assessments made against insurer assets 
A)  To absorb losses arising from sales of assets for less than their cost (capital losses) 
B)  To absorb losses arising from the insolvency of debtors (credit losses) 
C)  To absorb losses caused by changes (increases) in interest rates on government securities 
D)  To absorb losses caused by guaranty fund assessments made against insurer assets

Question 6

Congress passed McCarran-Ferguson Act as a response to the SEUA decision.

Accepted Answer

A) True 
 B)False

Question 7

In the Paul v. Virginia decision, the U.S. Supreme Court decided that Paul was legally an agent of the state of Virginia.

Accepted Answer

A) True 
 B)False

Question 8

A loss reserve is more likely to be maintained in relatively large amounts by a property than a life insurance company.

Accepted Answer

A) True 
 B)False

Question 9

What is the purpose of the asset valuation reserve?

Accepted Answer

A)  To absorb losses arising from sales of assets for less than their cost (capital losses) 
B)  To absorb losses arising from the insolvency of debtors (credit losses) 
C)  To absorb losses caused by changes (increases) in interest rates on government securities 
D)  To absorb losses caused by guaranty fund assessments made against insurer assets 
A)  To absorb losses arising from sales of assets for less than their cost (capital losses) 
B)  To absorb losses arising from the insolvency of debtors (credit losses) 
C)  To absorb losses caused by changes (increases) in interest rates on government securities 
D)  To absorb losses caused by guaranty fund assessments made against insurer assets

Question 10

The failure of three large life insurance companies resulted in the NAIC's development of which of the following for life insurers?

Accepted Answer

A)  Interest maintenance reserves 
B)  Asset valuation reserves 
C)  Risk-based capital requirements 
D)  National guaranty funds 
A)  Interest maintenance reserves 
B)  Asset valuation reserves 
C)  Risk-based capital requirements 
D)  National guaranty funds

Question 11

Which of the following is an example of a nonadmitted asset?

Accepted Answer

A)  Office furniture 
B)  Supplies 
C)  Equipment 
D)  All of the above 
A)  Office furniture 
B)  Supplies 
C)  Equipment 
D)  All of the above

Question 12

NAIC stands for:

Accepted Answer

A)  National Association of Investment Commissioners 
B)  National Affiliated Insurance Commissioners 
C)  National Association of Insurance Commissioners 
D)  none of the above 
A)  National Association of Investment Commissioners 
B)  National Affiliated Insurance Commissioners 
C)  National Association of Insurance Commissioners 
D)  none of the above

Question 13

Explain what a guarantee fund is. How are guarantee funds financed?

Accepted Answer

A guarantee fund is designed t

Question 14

What is the overall regulatory objective for a state's rate regulations?

Accepted Answer

The overall objective of a sta

Question 15

A foreign insurer is:

Accepted Answer

A)  one that is home-officed outside the U.S. 
B)  one that has offices both in the U.S. and in other countries 
C)  one that is incorporated in another state 
D)  one that has not been in existence for at least three fiscal years 
A)  one that is home-officed outside the U.S. 
B)  one that has offices both in the U.S. and in other countries 
C)  one that is incorporated in another state 
D)  one that has not been in existence for at least three fiscal years

Question 16

Why is there unequal knowledge and bargaining power in the insurance transaction?

Accepted Answer

A)  The complexity of the insurance contract and the intangible nature of the product 
B)  The insurance companies want to confuse consumers so it is difficult to make choices. 
C)  Consumers do not receive the policy until months after the contract goes into effect. 
D)  There is no competition in the industry, therefore the consumer is stuck with inferior products. 
A)  The complexity of the insurance contract and the intangible nature of the product 
B)  The insurance companies want to confuse consumers so it is difficult to make choices. 
C)  Consumers do not receive the policy until months after the contract goes into effect. 
D)  There is no competition in the industry, therefore the consumer is stuck with inferior products.

Question 17

A legal reserve is a cash asset account maintained by life insurers.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is not an argument for federal regulation?

Accepted Answer

A)  There will be substantial improvement in efficiency due to fewer jurisdictional requirements. 
B)  There will be less influence over federal regulators by insurance companies. 
C)  There will be more expertly trained personnel. 
D)  It will bring more tax money to the federal government. 
A)  There will be substantial improvement in efficiency due to fewer jurisdictional requirements. 
B)  There will be less influence over federal regulators by insurance companies. 
C)  There will be more expertly trained personnel. 
D)  It will bring more tax money to the federal government.

Question 19

Property insurance companies have more freedom in their investment activities than do life insurance companies.

Accepted Answer

A) True 
 B)False

Question 20

Explain what a policy reserve is. How is a policy reserve calculated?

Accepted Answer

A policy reserve is a legal reserve that

Exam 10: Insurance Regulation

A life insurer's policy reserve equals the difference between the mathematical liability of a future death claim and the value of:

Insurance regulations require legal reserves and surplus because:

Explain briefly the purpose of the McCarran Act.

Different prices for identical goods is one sign of a market that has uninformed buyers.

What is the purpose of the interest maintenance reserve?

Congress passed McCarran-Ferguson Act as a response to the SEUA decision.

In the Paul v. Virginia decision, the U.S. Supreme Court decided that Paul was legally an agent of the state of Virginia.

A loss reserve is more likely to be maintained in relatively large amounts by a property than a life insurance company.

What is the purpose of the asset valuation reserve?

The failure of three large life insurance companies resulted in the NAIC's development of which of the following for life insurers?

Which of the following is an example of a nonadmitted asset?

NAIC stands for:

Explain what a guarantee fund is. How are guarantee funds financed?

What is the overall regulatory objective for a state's rate regulations?

A foreign insurer is:

Why is there unequal knowledge and bargaining power in the insurance transaction?

A legal reserve is a cash asset account maintained by life insurers.

Which of the following is not an argument for federal regulation?

Property insurance companies have more freedom in their investment activities than do life insurance companies.

Explain what a policy reserve is. How is a policy reserve calculated?

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

Insurable Perils and Insuring Organizations

Insurance Functions

Insurance Markets: Economics and Issues

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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