Exam 7: Financial Operations of Insurers

Which of the following statements about methods for estimating loss reserves for property and casualty insurers is (are) true? I.The judgment method involves the use of a statutory formula to estimate the loss reserve. II.The average value method is used when the number of claims is large and the claims are settled quickly.

Small Town used to be just that-a small town 6 miles from Large City. Over the years, the area between Small Town and Large City has developed, and now Small Town is part of the suburbs surrounding Large City. An auto insurer that operated in the area had a large increase in auto claims from Small Town insureds. The insurer did not adjust its rates, and this year will lose money because of claims attributable to higher population density. Which business rating objective did this insurer fail to meet?

A manufacturing company just hired a new risk manager, and she has instituted several employee safety programs. She has persuaded the insurer writing the company's workers compensation insurance to base the premium on the company's actual loss experience during the current coverage period rather than on the company's historical performance. This type of plan is called a(n)

To protect policyholders, state laws place limitations on a life insurance company's investments. The assets backing interest-sensitive products, such as variable life insurance and variable annuities, are not subject to these restrictions. Assets backing interest-sensitive products are placed in a special account called the life insurer's

MedProf Insurance markets medical malpractice insurance. The company's combined ratio in 2015 was 95.4. Its expense ratio was 25.4. What was the company's loss ratio?

Reasons for the unearned premium reserve include which of the following? I.To pay losses that occur during the policy period. II.To pay premium refunds to policyholders in the event of cancellation.

Which of the following statements about schedule rating is (are) true? I.It involves the determination of a basis rate for each exposure, which is then modified by credits or debits. II.It is based on the assumption that certain physical characteristics of the insured's operations will influence the insured's future loss experience.

Under one method of estimating a loss reserve, the reserve is based on life expectancy, duration of disability, and similar factors. This method of estimating loss reserves is called the

Monopoly Insurance is the only company marketing a certain line of insurance in a state. After complaints from several consumers, the State Insurance Department investigated Monopoly's rates. The regulators determined that Monopoly was taking advantage of being the only insurer offering the line by charging more than double the actuarial cost of the coverage. Which regulatory rating objective was Monopoly violating?

A property and liability insurance company's loss ratio and expense ratio, respectively, for 2013 - 2015 were: 2013:74%31% 2014:68%33% 2015:66%30% Which of the following statements is true about the company's underwriting results for this time period?

The assets of a property and liability insurance company are primarily

Ratemakers at ABC Insurance Company calculated the pure premium to be $280 for a risk they were considering insuring. What is the gross rate for this risk, assuming a 30 percent expense ratio?

Which of the following statements is (are) true about the loss ratio method of class rating? I.The pure premium is calculated, and it is loaded to cover expenses, profit, and contingencies. II.The actual loss ratio is compared to the expected loss ratio, and the rate is adjusted accordingly.

XYZ Insurance Company expects $500,000 in claims and loss adjustment expenses for each 1,000 properties that it insures in a certain category of business insurance. What pure premium should XYZ charge for each property insured?

Which of the following items would appear in the income section of an insurance company's income and expense statement?

All of the following statements about class rating are true EXCEPT

One item that appears on an insurance company's financial statements is a liability that represents an estimate of the claims reported and adjusted but not yet paid, claims reported and filed but not yet adjusted, and claims incurred but not yet reported to the company. This liability is called the insurer's

A property and casualty insurer's loss reserve includes estimates for all of the following EXCEPT

JKL Insurance Company reported the following information on its accounting statements last year: Premiums Written $90,000,000 Loss Adjustment Expenses $5,000,000 Underwriting Expenses $30,000,000 Premiums Earned $100,000,000 Incurred Losses $70,000,000 What was JKL's expense ratio last year?

Which of the following statements about experience rating is (are) true? I.The insured's past loss experience is used to determine the premium for the next policy period. II.Its use is generally limited to small firms whose actual experience lacks credibility.