Exam 6: Insurance Company Operations

Granite Insurance Company entered into a treaty reinsurance agreement with Rock Solid Reinsurance (RSR). Granite's retention limit is $400,000 and RSR agreed to provide reinsurance for up to $2.0 million. If Granite writes an $800,000 policy, RSR is responsible for 50 percent of the losses. If Granite insures a $1.6 million risk, RSR is responsible for 25 percent of any losses. What type of reinsurance arrangement did Granite enter into with RSR?

Ross studied engineering in college. After graduation, he went to work for an insurance company. Ross visits properties insured by his company. He conducts inspections and makes recommendations about alarm systems, sprinkler systems, and building construction. In what functional area does Ross work?

Morgan was hired by an insurance company after she graduated from college. Upon completion of a training program, Morgan was assigned to a territory where she adjusts claims of the insurer's policyowners. Morgan is a(n)

Which of the following statements is (are) true about life insurance company investments? I.The majority of life insurance company general account assets are invested in bonds. II.The majority of life insurance company separate account assets are invested in stocks.

One source of life and health insurance underwriting information is an organization that life and health insurance companies can join. As a member, life and health insurance companies report health impairments of applicants, and this information is shared with member companies. Although the information is shared, the underwriting decision of the member company is not disclosed. What is this organization called?

The process of transferring risk to the capital markets through the use of financial instruments such as bonds, futures contracts, and options is known as

Factors that may result in more restrictive underwriting decisions include which of the following? I.Inadequate rates. II.The unavailability of reinsurance at favorable terms.

All of the following are reasons for a primary insurer to use reinsurance EXCEPT

The primary function of an actuary is to

When a fraternal insurer began operations, it asked each member, regardless of age, to pay $20 per month to the fraternal's group life insurance plan. In exchange, each member received the same amount of life insurance. Soon younger members of the group began to drop out when they realized their premiums were subsidizing a group with a higher chance of loss. Which important underwriting principle was violated in this case?

New Liability Insurance Company began operations last year and has been very successful. The company's ability to grow is being restricted by an accounting rule that requires insurers to realize acquisition expenses immediately, while not realizing premiums received as income until some time has passed. Reinsurance is often used in such cases for which of the following purposes?

Sue double-majored in mathematics and statistics in college. She also enrolled in a number of finance courses. After graduation, she was hired by Econodeath Insurance Company. Her job is to calculate premium rates for life insurance coverages. Sue is a(n)

Beverly lives in a sparsely populated area in northern Idaho. Some insurance companies marketing coverage in northern Idaho cannot afford to have full-time adjustors there. Several insurers hire Beverly to adjust claims for their insureds. Beverly charges the insurers a fee for each claim that she settles. Beverly is a(n)

Most insurance companies require their marketing representatives to submit an evaluation of the prospective insured. This important source of underwriting information is called the

Huge Insurance Company is a property insurer that is interested in protecting itself against cumulative losses that exceed $200 million during the year. This protection can best be obtained using a(n)

Which of the following statements is (are) true with respect to catastrophe bonds? I.The bonds are issued by the U.S. Government. II.The bonds have relatively high interest (coupon) rates.

Which of the following statements about claim settlement is (are) true? I.The fair payment of claims requires an insurer to adopt a very liberal claims policy. II.To prevent lawsuits, an insurer should provide no personal assistance to a claimant other than that which is required by contractual obligations.

Which of the following statements about the investments of property and liability insurers is (are) true? I.Income from investments is important in offsetting any unfavorable underwriting experience. II.Because premium income is continually being received, the investment objective of liquidity is of little importance.

Which of the following statements is true regarding the information systems functional area of an insurance company? I.Computers and information systems are able to perform some tasks that previously were performed directly by employees. II.Information systems can speed the processing of policies by insurers.

Delta Insurance Company has a surplus-share treaty with Eversafe Reinsurance. Delta has a retention limit of $200,000, and nine lines of insurance are ceded to Eversafe. How much will Eversafe pay if a $1,600,000 building insured by Delta suffers an $800,000 loss?