Question 1

What explains the recent increase in many large insurance companies conversion to stockholder controlled companies?

Accepted Answer

A) Pressure from policyholders. 
B) Additional premiums. 
C) Access to equity markets. 
D) Tax concerns. 
E) Regulatory requirement. 
A) Pressure from policyholders. 
B) Additional premiums. 
C) Access to equity markets. 
D) Tax concerns. 
E) Regulatory requirement.

Question 2

An insurance policy that often is the least expensive to the insured because of the policy does not include a savings plan is called

Accepted Answer

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

Question 3

The operating ratio for a P&C insurer equals

Accepted Answer

A) loss ratio plus the ratios of loss adjustment expenses to premiums earned. 
B) loss ratio plus expense ratio plus dividend ratio. 
C) combined ratio minus dividends paid to policyholders. 
D) acquisition costs plus dividends paid as a proportion of premiums earned. 
E) combined ratio after dividends minus the investment yield. 
A) loss ratio plus the ratios of loss adjustment expenses to premiums earned. 
B) loss ratio plus expense ratio plus dividend ratio. 
C) combined ratio minus dividends paid to policyholders. 
D) acquisition costs plus dividends paid as a proportion of premiums earned. 
E) combined ratio after dividends minus the investment yield.

Question 4

Property & casualty insurers tend to have a higher level of liquidity risk than life insurers.

Accepted Answer

A) True 
 B)False

Question 5

Annuities are popular retirement savings products because investment returns on contributions are tax-deferred.

Accepted Answer

A) True 
 B)False

Question 6

In the case of an insurance company failure, policyholders immediately receive a payout of the cash surrender value of their policies.

Accepted Answer

A) True 
 B)False

Question 7

In general, maximum levels of losses in the property &casualty industry are more predictable for liability lines than for property lines.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is an advantage of converting from a mutual insurance company to a stockholder-controlled company?

Accepted Answer

A) Publicly held companies have access to equity markets for additional capital for future business expansion. 
B) Mutual organizations are subject to higher regulatory standards than public companies. 
C) Ability to offer more insurance products than those allowed under mutual ownership. 
D) Publicly held insurance companies can convert to federal charters but mutual organizations cannot. 
E) Mutual organizations can only underwrite policies in the province or territory in which they are chartered while publicly held organizations can operate across Canada. 
A) Publicly held companies have access to equity markets for additional capital for future business expansion. 
B) Mutual organizations are subject to higher regulatory standards than public companies. 
C) Ability to offer more insurance products than those allowed under mutual ownership. 
D) Publicly held insurance companies can convert to federal charters but mutual organizations cannot. 
E) Mutual organizations can only underwrite policies in the province or territory in which they are chartered while publicly held organizations can operate across Canada.

Question 9

Assuris is administered by CDIC.

Accepted Answer

A) True 
 B)False

Question 10

If losses on a particular line of fire insurance were $430 million, premiums earned were $595 million, and loss adjustment expenses were $95 million, the combined ratio would be

Accepted Answer

A) 0.88 implying that this line of insurance is profitable. 
B) 0.88 implying that this line of insurance is unprofitable. 
C) 1.13 implying that this line of insurance is profitable. 
D) 1.13 implying that this line of insurance is unprofitable. 
E) 0.22 implying that this line of insurance is profitable. 
A) 0.88 implying that this line of insurance is profitable. 
B) 0.88 implying that this line of insurance is unprofitable. 
C) 1.13 implying that this line of insurance is profitable. 
D) 1.13 implying that this line of insurance is unprofitable. 
E) 0.22 implying that this line of insurance is profitable.

Question 11

For property & casualty insurers, losses are higher for lines that are exposed to

Accepted Answer

A) long tails and low inflation. 
B) long tails and high inflation. 
C) short tails and low inflation. 
D) short tails and high inflation. 
E) short tails and no inflation. 
A) long tails and low inflation. 
B) long tails and high inflation. 
C) short tails and low inflation. 
D) short tails and high inflation. 
E) short tails and no inflation.

Question 12

The two policy categories offered by property & casualty insurers that are most likely to be subject to rate regulation in Canada are

Accepted Answer

A) auto insurance and worker's compensation. 
B) homeowner multiple peril and commercial multiple peril. 
C) earthquake and flood. 
D) surety bonds and financial guaranty. 
E) product liability and farm owner multiple peril. 
A) auto insurance and worker's compensation. 
B) homeowner multiple peril and commercial multiple peril. 
C) earthquake and flood. 
D) surety bonds and financial guaranty. 
E) product liability and farm owner multiple peril.

Question 13

Calculate the annual cash flows of a $2 million, 10-year fixed-payment annuity earning a guaranteed 8 percent annually if the payments are to start at the end of this year.

Accepted Answer

A) $137,990.27. 
B) $275,980.53. 
C) $298,058.98. 
D) $149,029.49. 
E) $220,000.00. 
A) $137,990.27. 
B) $275,980.53. 
C) $298,058.98. 
D) $149,029.49. 
E) $220,000.00.

Question 14

During the most recent financial crisis, life insurance companies with large proportions of separate accounts business were well-protected from the decline in the debt and equity markets.

Accepted Answer

A) True 
 B)False

Question 15

Employers that sponsor non-contributory group life insurance require the employee to pay the insurance premiums.

Accepted Answer

A) True 
 B)False

Question 16

Property & casualty insurance involves

Accepted Answer

A) insurance coverage related to the loss of real and personal property. 
B) insurance protection against legal liability exposure. 
C) insurance protection against injuries in employment related work. 
D) insurance coverage related to the loss of real and personal property, and insurance protection against legal liability exposure. 
E) insurance coverage related to the loss of real and personal property, and insurance protection against injuries in employment related work. 
A) insurance coverage related to the loss of real and personal property. 
B) insurance protection against legal liability exposure. 
C) insurance protection against injuries in employment related work. 
D) insurance coverage related to the loss of real and personal property, and insurance protection against legal liability exposure. 
E) insurance coverage related to the loss of real and personal property, and insurance protection against injuries in employment related work.

Question 17

A term life policy allows the policyholder to vary the maturity of the policy.

Accepted Answer

A) True 
 B)False

Question 18

The insurance company that was the largest beneficiary of U.S. federal bailout funds during the most recent financial crisis was

Accepted Answer

A) Manulife Financial. 
B) UBS. 
C) State Farm. 
D) AIG. 
E) New York Life. 
A) Manulife Financial. 
B) UBS. 
C) State Farm. 
D) AIG. 
E) New York Life.

Question 19

The expected loss potential is more difficult to determine with low-severity, high-frequency events.

Accepted Answer

A) True 
 B)False

Question 20

Calculate the annual cash flows of a $500,000, 12-year fixed-payment annuity earning a guaranteed 6 percent per year if annual payments are to begin at the end of the current year.

Accepted Answer

A) $59,638.51. 
B) $56,262.75. 
C) $29,819.26. 
D) $83,841.52. 
E) $28,131.37. 
A) $59,638.51. 
B) $56,262.75. 
C) $29,819.26. 
D) $83,841.52. 
E) $28,131.37.

Exam 6: Insurance Companies

What explains the recent increase in many large insurance companies conversion to stockholder controlled companies?

An insurance policy that often is the least expensive to the insured because of the policy does not include a savings plan is called

The operating ratio for a P&C insurer equals

Property & casualty insurers tend to have a higher level of liquidity risk than life insurers.

Annuities are popular retirement savings products because investment returns on contributions are tax-deferred.

In the case of an insurance company failure, policyholders immediately receive a payout of the cash surrender value of their policies.

In general, maximum levels of losses in the property &casualty industry are more predictable for liability lines than for property lines.

Which of the following is an advantage of converting from a mutual insurance company to a stockholder-controlled company?

Assuris is administered by CDIC.

If losses on a particular line of fire insurance were $430 million, premiums earned were $595 million, and loss adjustment expenses were $95 million, the combined ratio would be

For property & casualty insurers, losses are higher for lines that are exposed to

The two policy categories offered by property & casualty insurers that are most likely to be subject to rate regulation in Canada are

Calculate the annual cash flows of a $2 million, 10-year fixed-payment annuity earning a guaranteed 8 percent annually if the payments are to start at the end of this year.

During the most recent financial crisis, life insurance companies with large proportions of separate accounts business were well-protected from the decline in the debt and equity markets.

Employers that sponsor non-contributory group life insurance require the employee to pay the insurance premiums.

Property & casualty insurance involves

A term life policy allows the policyholder to vary the maturity of the policy.

The insurance company that was the largest beneficiary of U.S. federal bailout funds during the most recent financial crisis was

The expected loss potential is more difficult to determine with low-severity, high-frequency events.

Calculate the annual cash flows of a $500,000, 12-year fixed-payment annuity earning a guaranteed 6 percent per year if annual payments are to begin at the end of the current year.

Why Are Financial Institutions Special

Deposit-Taking Institutions

Finance Companies

Securities, Brokerage, and Investment Banking

Mutual Funds, Hedge Funds, and Pension Funds

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loans

Credit Risk: Loan Portfolio and Concentration Risk

Liquidity Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Capital Adequacy

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization Index

Filters