Question 1

What is separate account business?
 How important is it to life insurers?

Accepted Answer

Assets managed by the life insurer on behalf of a client,such as pension fund assets,are separate account business. In 2013,about 35.8 percent of assets were separate accounts-quite a significant portion of their business.

Question 2

The operating ratio is calculated as

Accepted Answer

A) the loss ratio minus the underwriting cycle lag. 
B) the loss ratio plus the loss adjustment expense ratio plus the commission to premium ratio. 
C) the combined ratio after dividends minus the investment yield. 
D) the combined ratio minus the loss ratio. 
E) none of the options. 
A) the loss ratio minus the underwriting cycle lag. 
B) the loss ratio plus the loss adjustment expense ratio plus the commission to premium ratio. 
C) the combined ratio after dividends minus the investment yield. 
D) the combined ratio minus the loss ratio. 
E) none of the options. C

Question 3

A man has what he believes is a mild heart attack but he doesn't go to the hospital. Instead he calls his insurance agent and doubles the amount of his life insurance. This is an example of the moral hazard problem in insurance.

Accepted Answer

A) True 
 B)False  False

Question 4

In a typical variable life policy the policyholder may vary the premium payments and the maturity date of the policy.

Accepted Answer

A) True 
 B)False

Question 5

The McFadden Act grants states the primary right to regulate insurance companies.

Accepted Answer

A) True 
 B)False

Question 6

Most states maintain a permanent reserve fund to resolve insurance company failures.

Accepted Answer

A) True 
 B)False

Question 7

The P&C loss ratio on an insurance line contains
I. payouts on claims.
II. brokerage commissions incurred to market the claims.
III. costs associated with settling claims.
IV. dividend payouts to policyholders.

Accepted Answer

A) I and II only 
B) I,III,and IV only 
C) I and III only 
D) II and IV only 
E) III and IV only 
A) I and II only 
B) I,III,and IV only 
C) I and III only 
D) II and IV only 
E) III and IV only

Question 8

Policy reserves are the primary asset of the typical life insurer.

Accepted Answer

A) True 
 B)False

Question 9

Life insurers write over 50 percent of all health insurance premiums.

Accepted Answer

A) True 
 B)False

Question 10

Which one of the following statements concerning annuities offered by insurers is not true?

Accepted Answer

A) Interest on annuities is not taxed until the investor receives the payments. 
B) Annuity payments may be fixed or variable. 
C) Annuity contributions are not capped by the IRS. 
D) Annuities can be deferred or immediate. 
E) Annuity payments must cease upon the policyholder's death. 
A) Interest on annuities is not taxed until the investor receives the payments. 
B) Annuity payments may be fixed or variable. 
C) Annuity contributions are not capped by the IRS. 
D) Annuities can be deferred or immediate. 
E) Annuity payments must cease upon the policyholder's death.

Question 11

Estimates of the cost of the September 11,2001,terrorist attacks on the World Trade Center indicate that the cost to insurance companies was as high as

Accepted Answer

A) $20 billion. 
B) $30 billion. 
C) $40 billion. 
D) $50 billion. 
E) $60 billion. 
A) $20 billion. 
B) $30 billion. 
C) $40 billion. 
D) $50 billion. 
E) $60 billion.

Question 12

The top 10 property and casualty firms underwrite just under half of all the P&C premiums written.

Accepted Answer

A) True 
 B)False

Question 13

The two major components of expense risk for P&C insurers are

Accepted Answer

A) the combined ratio and the premium ratio. 
B) loss adjustment expenses and variations in commission and other expenses. 
C) investment yield and premiums earned. 
D) dividend ratio and investment yield. 
E) none of the options. 
A) the combined ratio and the premium ratio. 
B) loss adjustment expenses and variations in commission and other expenses. 
C) investment yield and premiums earned. 
D) dividend ratio and investment yield. 
E) none of the options.

Question 14

The most important federal legislation affecting the regulation of life insurance companies prior to 1999 was the

Accepted Answer

A) McCarran-Ferguson Act. 
B) McFadden Act. 
C) Investment Company Act. 
D) SEC Act. 
E) Insurance Freedom Act. 
A) McCarran-Ferguson Act. 
B) McFadden Act. 
C) Investment Company Act. 
D) SEC Act. 
E) Insurance Freedom Act.

Question 15

What three main sources of underwriter risk exist for insurers?

Accepted Answer

* Unexpected increases in loss

Question 16

The following type(s)of life insurance policies do not have a savings feature:

Accepted Answer

A) Term life 
B) Whole life 
C) Variable life 
D) Universal life 
E) Both variable life and universal life 
A) Term life 
B) Whole life 
C) Variable life 
D) Universal life 
E) Both variable life and universal life

Question 17

The term "variable" in a variable life policy refers to the

Accepted Answer

A) policyholder's ability to vary the premiums. 
B) insurer's ability to vary the rate of return on the policy. 
C) variable growth rate of the cash value of the policy. 
D) insurer's ability to vary the premiums. 
E) the policyholder's ability to cancel the plan. 
A) policyholder's ability to vary the premiums. 
B) insurer's ability to vary the rate of return on the policy. 
C) variable growth rate of the cash value of the policy. 
D) insurer's ability to vary the premiums. 
E) the policyholder's ability to cancel the plan.

Question 18

Property loss risk is generally easier to estimate than liability loss risk.

Accepted Answer

A) True 
 B)False

Question 19

In property and casualty insurance the combined ratio is equal to ______________________ divided by total premiums written.

Accepted Answer

A) the sum of the loss ratio plus loss adjustment expenses 
B) the sum of the loss ratio plus general expenses and broker's commissions 
C) the operating ratio minus dividends paid to policyholders 
D) the nominal ratio plus the real ratio 
E) 1 minus the operating ratio 
A) the sum of the loss ratio plus loss adjustment expenses 
B) the sum of the loss ratio plus general expenses and broker's commissions 
C) the operating ratio minus dividends paid to policyholders 
D) the nominal ratio plus the real ratio 
E) 1 minus the operating ratio

Question 20

The largest asset category of life insurers is _______________ and the largest liability category is ___________.

Accepted Answer

A) bonds; separate account items 
B) separate account items; current policy claims 
C) bonds; policy reserves 
D) policy reserves; mortgage loans 
E) common stock; dividend reserve 
A) bonds; separate account items 
B) separate account items; current policy claims 
C) bonds; policy reserves 
D) policy reserves; mortgage loans 
E) common stock; dividend reserve

Exam 15: Insurance Companies

What is separate account business? How important is it to life insurers?

The operating ratio is calculated as

A man has what he believes is a mild heart attack but he doesn't go to the hospital. Instead he calls his insurance agent and doubles the amount of his life insurance. This is an example of the moral hazard problem in insurance.

In a typical variable life policy the policyholder may vary the premium payments and the maturity date of the policy.

The McFadden Act grants states the primary right to regulate insurance companies.

Most states maintain a permanent reserve fund to resolve insurance company failures.

The P&C loss ratio on an insurance line contains I. payouts on claims. II. brokerage commissions incurred to market the claims. III. costs associated with settling claims. IV. dividend payouts to policyholders.

Policy reserves are the primary asset of the typical life insurer.

Life insurers write over 50 percent of all health insurance premiums.

Which one of the following statements concerning annuities offered by insurers is not true?

Estimates of the cost of the September 11,2001,terrorist attacks on the World Trade Center indicate that the cost to insurance companies was as high as

The top 10 property and casualty firms underwrite just under half of all the P&C premiums written.

The two major components of expense risk for P&C insurers are

The most important federal legislation affecting the regulation of life insurance companies prior to 1999 was the

What three main sources of underwriter risk exist for insurers?

The following type(s)of life insurance policies do not have a savings feature:

The term "variable" in a variable life policy refers to the

Property loss risk is generally easier to estimate than liability loss risk.

In property and casualty insurance the combined ratio is equal to ______________________ divided by total premiums written.

The largest asset category of life insurers is _______________ and the largest liability category is ___________.

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, Monetary Policy, and Interest Rates

Money Markets

Bond Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, Credit Unions, and Finance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters

The largest asset category of life insurers is _____ and the largest liability category is _.