Question 1

Which of the following is NOT a possible result when a property & casualty company purchases reinsurance?

Accepted Answer

A) improved capital position. 
B) limits on losses on reinsured policies. 
C) stabilized cash flows. 
D) dilution of earnings per share. 
E) All of these are possible results of purchasing reinsurance. 
A) improved capital position. 
B) limits on losses on reinsured policies. 
C) stabilized cash flows. 
D) dilution of earnings per share. 
E) All of these are possible results of purchasing reinsurance.

Question 2

Calculate the annual cash flows of a $500,000, 12-year fixed-payment deferred annuity earning a guaranteed 5 percent per year if annual payments are to begin at the end of year 4.

Accepted Answer

A) $32,652.38. 
B) $79,018.76. 
C) $62,195.01. 
D) $65,304.76. 
E) $31,097.50. 
A) $32,652.38. 
B) $79,018.76. 
C) $62,195.01. 
D) $65,304.76. 
E) $31,097.50.

Question 3

Separate accounts business of a life insurance company represents

Accepted Answer

A) policies written that cover individuals as a group. 
B) liabilities owed to other life insurance companies as a result of reinsurance. 
C) the cumulative cash value paid to policyholders if the policies are terminated before maturity. 
D) a fund established separately from the other funds of the insurance company and invested without regard to the usual diversification restrictions. 
E) the cumulative price that the company may repurchase policies from existing customers. 
A) policies written that cover individuals as a group. 
B) liabilities owed to other life insurance companies as a result of reinsurance. 
C) the cumulative cash value paid to policyholders if the policies are terminated before maturity. 
D) a fund established separately from the other funds of the insurance company and invested without regard to the usual diversification restrictions. 
E) the cumulative price that the company may repurchase policies from existing customers.

Question 4

What is essentially understood to be insurance for property & casualty insurance companies?

Accepted Answer

A) Policy reserves. 
B) Conditional reserve funds. 
C) Reinsurance. 
D) Unearned premiums. 
E) Surplus notes. 
A) Policy reserves. 
B) Conditional reserve funds. 
C) Reinsurance. 
D) Unearned premiums. 
E) Surplus notes.

Question 5

What does the loss ratio measure in any particular year?

Accepted Answer

A) Payouts on policies to premiums earned. 
B) Amount of premiums earned relative to the payout on policies. 
C) Overall underwriting profitability of a line. 
D) Loss adjustment expenses to premiums earned. 
E) Commission and other acquisition costs to premiums written. 
A) Payouts on policies to premiums earned. 
B) Amount of premiums earned relative to the payout on policies. 
C) Overall underwriting profitability of a line. 
D) Loss adjustment expenses to premiums earned. 
E) Commission and other acquisition costs to premiums written.

Question 6

The primary regulator of both the life and property & casualty insurance industry is/are the

Accepted Answer

A) OSFI. 
B) CDIC. 
C) The Bank of Canada. 
D) The Minister of Finance. 
E) Provincial/territorial regulators. 
A) OSFI. 
B) CDIC. 
C) The Bank of Canada. 
D) The Minister of Finance. 
E) Provincial/territorial regulators.

Question 7

Insurance policy benefits are classified on an insurance company's balance sheet as

Accepted Answer

A) liabilities, because the insurance company may have to pay out the benefits. 
B) assets, because policy benefits are valuable to the company. 
C) liabilities, because customers may fall behind on their premium payments. 
D) assets, because policy benefits are fully covered by premium payments. 
E) liabilities, because insurance companies must maintain a capital base to cover the payments of benefits. 
A) liabilities, because the insurance company may have to pay out the benefits. 
B) assets, because policy benefits are valuable to the company. 
C) liabilities, because customers may fall behind on their premium payments. 
D) assets, because policy benefits are fully covered by premium payments. 
E) liabilities, because insurance companies must maintain a capital base to cover the payments of benefits.

Question 8

Which of the following arises in policies in which the insured event occurs during a coverage period but a claim is not filed or reported until many years later?

Accepted Answer

A) Short-tail losses. 
B) Adverse selection. 
C) Moral hazard. 
D) Long-tail losses. 
E) Social inflation. 
A) Short-tail losses. 
B) Adverse selection. 
C) Moral hazard. 
D) Long-tail losses. 
E) Social inflation.

Question 9

The policy that will pay a specific dollar benefit to beneficiaries and remains in effect as long as premiums are paid is called whole life.

Accepted Answer

A) True 
 B)False

Question 10

Loss adjustment expenses refer to the costs surrounding the loss settlement process.

Accepted Answer

A) True 
 B)False

Question 11

Loss exposures faced by insurers in accident and health lines are more similar to those faced by traditional life insurance than by property & casualty insurance.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is used as collateral when an insurance company issues policy loans?

Accepted Answer

A) Expected premium payments. 
B) Existing policies. 
C) Unearned premiums. 
D) Guarantee funds. 
E) Government of Canada bonds. 
A) Expected premium payments. 
B) Existing policies. 
C) Unearned premiums. 
D) Guarantee funds. 
E) Government of Canada bonds.

Question 13

The primary function of insurance companies is to

Accepted Answer

A) generate fees for the banks that sell insurance products. 
B) sell a variety of consumer investment products. 
C) protect policyholders from adverse events. 
D) assist in the transfer of wealth into the future. 
E) provide contracts that encourage policyholders to save current income. 
A) generate fees for the banks that sell insurance products. 
B) sell a variety of consumer investment products. 
C) protect policyholders from adverse events. 
D) assist in the transfer of wealth into the future. 
E) provide contracts that encourage policyholders to save current income.

Question 14

Which of the following involves fixed premium payments and a benefit payout at the time of death that will depend on investment returns over the life of the policy?

Accepted Answer

A) Term life. 
B) Variable life. 
C) Whole life. 
D) Endowment life. 
E) Universal life. 
A) Term life. 
B) Variable life. 
C) Whole life. 
D) Endowment life. 
E) Universal life.

Question 15

Because of the large amounts of policy reserves that life insurance companies carry as liabilities, they are rarely surprised by unexpected fluctuations in expected future payouts.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is pure life insurance with a savings element built in

Accepted Answer

A) term life. 
B) universal life. 
C) endowment life. 
D) variable universal life. 
E) variable life. 
A) term life. 
B) universal life. 
C) endowment life. 
D) variable universal life. 
E) variable life.

Question 17

Annuities offered by life insurance companies are a financial contract that

Accepted Answer

A) is used to build up a fund. 
B) pays only fixed returns to groups of employees. 
C) is used to liquidate a fund. 
D) pays only variable returns to individuals. 
E) None of these. 
A) is used to build up a fund. 
B) pays only fixed returns to groups of employees. 
C) is used to liquidate a fund. 
D) pays only variable returns to individuals. 
E) None of these.

Question 18

The surrender value of an insurance policy is

Accepted Answer

A) the expected payment commitment on existing policy contracts. 
B) a fund established and held separately from the company's other assets. 
C) the cash value paid to the policyholder if the policy is terminated before it matures. 
D) the same as the endowment payout. 
E) the price at which the company may repurchase the policy. 
A) the expected payment commitment on existing policy contracts. 
B) a fund established and held separately from the company's other assets. 
C) the cash value paid to the policyholder if the policy is terminated before it matures. 
D) the same as the endowment payout. 
E) the price at which the company may repurchase the policy.

Question 19

Pension fund management is a relatively small portion of the life insurance industry.

Accepted Answer

A) True 
 B)False

Question 20

Factors that affect the predictability of claims loss exposure include

Accepted Answer

A) unexpected increases in inflation. 
B) the frequency and severity of loss. 
C) the concept of long-tail risk. 
D) property versus liability coverage. 
E) All of these. 
A) unexpected increases in inflation. 
B) the frequency and severity of loss. 
C) the concept of long-tail risk. 
D) property versus liability coverage. 
E) All of these.

Exam 6: Insurance Companies

Which of the following is NOT a possible result when a property & casualty company purchases reinsurance?

Calculate the annual cash flows of a $500,000, 12-year fixed-payment deferred annuity earning a guaranteed 5 percent per year if annual payments are to begin at the end of year 4.

Separate accounts business of a life insurance company represents

What is essentially understood to be insurance for property & casualty insurance companies?

What does the loss ratio measure in any particular year?

The primary regulator of both the life and property & casualty insurance industry is/are the

Insurance policy benefits are classified on an insurance company's balance sheet as

Which of the following arises in policies in which the insured event occurs during a coverage period but a claim is not filed or reported until many years later?

The policy that will pay a specific dollar benefit to beneficiaries and remains in effect as long as premiums are paid is called whole life.

Loss adjustment expenses refer to the costs surrounding the loss settlement process.

Loss exposures faced by insurers in accident and health lines are more similar to those faced by traditional life insurance than by property & casualty insurance.

Which of the following is used as collateral when an insurance company issues policy loans?

The primary function of insurance companies is to

Which of the following involves fixed premium payments and a benefit payout at the time of death that will depend on investment returns over the life of the policy?

Because of the large amounts of policy reserves that life insurance companies carry as liabilities, they are rarely surprised by unexpected fluctuations in expected future payouts.

Which of the following is pure life insurance with a savings element built in

Annuities offered by life insurance companies are a financial contract that

The surrender value of an insurance policy is

Pension fund management is a relatively small portion of the life insurance industry.

Factors that affect the predictability of claims loss exposure include

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