Question 1

Policy reserves are a(n)

Accepted Answer

A) balance sheet liability. 
B) balance sheet asset. 
C) separate account item. 
D) insurance guarantee fund payment. 
E) income statement revenue item. 
A) balance sheet liability. 
B) balance sheet asset. 
C) separate account item. 
D) insurance guarantee fund payment. 
E) income statement revenue item.

Question 2

Liability lawsuits related to asbestos claims are an example of long tail losses.

Accepted Answer

A) True 
 B)False

Question 3

Premiums received before the coverage period are termed

Accepted Answer

A) unearned premiums. 
B) lagged premiums. 
C) loss adjustment expenses. 
D) loss reserves. 
E) policyholder's surplus. 
A) unearned premiums. 
B) lagged premiums. 
C) loss adjustment expenses. 
D) loss reserves. 
E) policyholder's surplus.

Question 4

Why are P&C insurers dependent on investment yields?
 Is this an argument for changing how this industry operates and/or how we regulate the industry?
 Explain.

Accepted Answer

High loss ratios and expense ratios have

Question 5

A 65-year-old person has saved $1,250,000 and wishes to receive 10 annual annuity payments,beginning in one year. If the annuity rate is 5.75 percent,he can expect to receive $167,829 per year.

Accepted Answer

A) True 
 B)False

Question 6

State Farm and other P&C insurers came into conflict with policyholders over claims filed as a result of Hurricane Katrina that resulted in lawsuits. The conflict resulted from

Accepted Answer

A) insurers' refusal to pay until reinsurance funds were collected. 
B) policyholders' fraudulent claims. 
C) insurers' insistence that the Katrina storm surge resulted in flood damage that was not covered. 
D) insurers overcharging for hurricane insurance. 
A) insurers' refusal to pay until reinsurance funds were collected. 
B) policyholders' fraudulent claims. 
C) insurers' insistence that the Katrina storm surge resulted in flood damage that was not covered. 
D) insurers overcharging for hurricane insurance.

Question 7

A policyholder wishes to annuitize the cash value of her insurance policy at retirement. She desires an annual payment of $95,000 per year and the cash value is expected to be $1,100,000 at retirement. Approximately how many payments can she expect to receive if annuity interest rates are 5.122 percent?

Accepted Answer

A) 18 
B) 16 
C) 14 
D) 12 
E) 10 
A) 18 
B) 16 
C) 14 
D) 12 
E) 10

Question 8

Liability losses are more subject to social inflation than property losses.

Accepted Answer

A) True 
 B)False

Question 9

At P&C insurers,if the combined ratio is less than 100 percent,the premiums charged were sufficient to cover

Accepted Answer

A) losses only. 
B) expenses only. 
C) both losses and expenses. 
D) losses,expenses,and investment returns on premiums. 
A) losses only. 
B) expenses only. 
C) both losses and expenses. 
D) losses,expenses,and investment returns on premiums.

Question 10

A 65-year-old wishes to convert the cash value of his insurance policy into an annuity. He can select an annuity that will last 15 years or one that lasts 20 years. If the cash value is $450,000 and interest rates are 5.25 percent,how much less per year will he receive if he chooses the 20-year annuity?

Accepted Answer

The answer of A 65-year-old wishes to convert the cash...

Question 11

Life insurance policy reserves are the estimated current worth of expected future payouts.

Accepted Answer

A) True 
 B)False

Question 12

For P&C insurers,if the combined ratio is more than 100 percent,that firm

Accepted Answer

A) could not have been profitable. 
B) must have been profitable. 
C) may have been profitable if investment returns were high enough. 
D) was profitable if the LAE was low enough. 
A) could not have been profitable. 
B) must have been profitable. 
C) may have been profitable if investment returns were high enough. 
D) was profitable if the LAE was low enough.

Question 13

A policyholder wishes to annuitize the cash value of his insurance policy at retirement. The cash value is $725,000. What payment (to the nearest dollar)can he expect if he wishes to receive 15 years of payments (starting next year)and interest rates are 5.25 percent?

Accepted Answer

A) $43,333 
B) $55,555 
C) $71,033 
D) $60,524 
E) $29,250 
A) $43,333 
B) $55,555 
C) $71,033 
D) $60,524 
E) $29,250

Question 14

In 2010 the average combined ratio after dividends for the P&C industry was ___________.

Accepted Answer

A) 102.4 
B) 105.6 
C) 107.2 
D) 97.6 
E) 93.5 
A) 102.4 
B) 105.6 
C) 107.2 
D) 97.6 
E) 93.5

Question 15

Hurricane damage in a given area is an example of a ____________________ for which it is difficult to predict loss exposure.

Accepted Answer

A) low-severity,low-frequency event 
B) high-severity,high-frequency event 
C) low-severity,high-frequency event 
D) high-severity,low-frequency event 
A) low-severity,low-frequency event 
B) high-severity,high-frequency event 
C) low-severity,high-frequency event 
D) high-severity,low-frequency event

Question 16

In a universal life policy the cash value of the contract grows at a fixed-rate set by the life insurer.

Accepted Answer

A) True 
 B)False

Question 17

The primary asset for P&C insurers is bonds.

Accepted Answer

A) True 
 B)False

Question 18

How do insurance guarantee funds differ from bank deposit insurance funds?

Accepted Answer

* The insurance funds are administered b

Question 19

Which of the following statements are true?
I. Catastrophe bonds may be used as a form of reinsurance.
II. Catastrophe bonds are structured so that if an insured event results in large losses for an insurer,the bond's required payments increase.
III. Buyers of catastrophe bonds benefit if the adverse event occurs.
IV. When issued,catastrophe bonds will have promised yields above the risk-free rate.

Accepted Answer

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

Question 20

The National Association of Insurance Commissions (NAIC)examines and regulates insurance companies.

Accepted Answer

A) True 
 B)False

Exam 15: Insurance Companies

Policy reserves are a(n)

Liability lawsuits related to asbestos claims are an example of long tail losses.

Premiums received before the coverage period are termed

Why are P&C insurers dependent on investment yields? Is this an argument for changing how this industry operates and/or how we regulate the industry? Explain.

A 65-year-old person has saved $1,250,000 and wishes to receive 10 annual annuity payments,beginning in one year. If the annuity rate is 5.75 percent,he can expect to receive $167,829 per year.

State Farm and other P&C insurers came into conflict with policyholders over claims filed as a result of Hurricane Katrina that resulted in lawsuits. The conflict resulted from

Liability losses are more subject to social inflation than property losses.

At P&C insurers,if the combined ratio is less than 100 percent,the premiums charged were sufficient to cover

Life insurance policy reserves are the estimated current worth of expected future payouts.

For P&C insurers,if the combined ratio is more than 100 percent,that firm

A policyholder wishes to annuitize the cash value of his insurance policy at retirement. The cash value is $725,000. What payment (to the nearest dollar)can he expect if he wishes to receive 15 years of payments (starting next year)and interest rates are 5.25 percent?

In 2010 the average combined ratio after dividends for the P&C industry was ___________.

Hurricane damage in a given area is an example of a ____________________ for which it is difficult to predict loss exposure.

In a universal life policy the cash value of the contract grows at a fixed-rate set by the life insurer.

The primary asset for P&C insurers is bonds.

How do insurance guarantee funds differ from bank deposit insurance funds?

The National Association of Insurance Commissions (NAIC)examines and regulates insurance companies.

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