Question 1

Why do P&C insurers place a large percentage of their investments in bonds and maintain large surpluses?

Accepted Answer

P&C insurers need stable cash flows to o

Question 2

An insurance line has a loss ratio of 72 percent and an expense ratio of 35 percent,and the firm pays 2 percent of premiums to policyholders as dividends. What level of investment yield is needed to make the P&C firm break even?

Accepted Answer

A) 5 percent 
B) 7 percent 
C) 9 percent 
D) 11 percent 
E) 18 percent 
A) 5 percent 
B) 7 percent 
C) 9 percent 
D) 11 percent 
E) 18 percent

Question 3

What additional flexibilities are provided by variable and universal life as compared to a standard whole life or endowment policy?

Accepted Answer

Variable life allows the policyholder to

Question 4

Halliburton was allowed to bankrupt one of its subsidiaries in settlements of lawsuits on asbestos cases. What are the pros and cons of allowing a firm to limit its liability by shifting the liability to only one subsidiary rather than placing all of the corporation's assets at risk?

Accepted Answer

The pros are probably limited to cost ar

Question 5

Property and casualty insurers hold _____________ short-term assets than life insurers because property and casualty loss rates are _____________ predictable than life insurance loss rates.

Accepted Answer

A) more; more 
B) more; less 
C) less; less 
D) less; more 
A) more; more 
B) more; less 
C) less; less 
D) less; more

Question 6

Premiums on standard annual renewable term life will generally increase as the policyholder ages.

Accepted Answer

A) True 
 B)False

Question 7

The best underwriting performance since 1936 in terms of the combined ratio occurred during ____________ for property and casualty insurers.

Accepted Answer

A) 1999 and 2000 
B) 2001 and 2002 
C) 2002 and 2003 
D) 2004 and 2005 
E) 2006 and 2007 
A) 1999 and 2000 
B) 2001 and 2002 
C) 2002 and 2003 
D) 2004 and 2005 
E) 2006 and 2007

Question 8

An investor has $25,000 that he can invest today. In addition to this amount,he can also invest $12,000 per year for 30 years (beginning one year from now)at which time he will retire. He plans on living for 25 years after he retires. If interest rates are 8 percent,what size annual annuity payment can he obtain for his retirement years? (All annuity payments are at year-end. Round your answer to the nearest dollar.)

Accepted Answer

A) $64,439 
B) $192,501 
C) $150,913 
D) $161,096 
E) $173,488 
A) $64,439 
B) $192,501 
C) $150,913 
D) $161,096 
E) $173,488

Question 9

What are the main lines of P&C insurance?

Accepted Answer

Fire and allied lines,homeowne

Question 10

The cash surrender value of a life insurance policy is the present value of expected future payouts on the policy.

Accepted Answer

A) True 
 B)False

Question 11

An insurance line has a pure loss ratio of 65 percent,LAE of 16 percent and an expense ratio of 26 percent; the firm pays 3 percent of premiums to policyholders as dividends and has an investment yield to premium ratio of 6 percent. Which one of the following statements is true?

Accepted Answer

A) The line is profitable because the operating ratio is greater than 100. 
B) The line is profitable because the operating ratio is less than 100. 
C) The line is not profitable because the operating ratio is greater than 100. 
D) The line is profitable because the combined ratio after dividends is greater than 100. 
E) The line is profitable because the combined ratio after dividends is less than 100. 
A) The line is profitable because the operating ratio is greater than 100. 
B) The line is profitable because the operating ratio is less than 100. 
C) The line is not profitable because the operating ratio is greater than 100. 
D) The line is profitable because the combined ratio after dividends is greater than 100. 
E) The line is profitable because the combined ratio after dividends is less than 100.

Question 12

An insurance line has a loss ratio of 62 percent and an expense ratio of 35 percent; the firm pays 2 percent of premiums to policyholders as dividends and has an investment yield to premium ratio of 9 percent. The operating ratio for this line is

Accepted Answer

A) 86. 
B) 90. 
C) 95. 
D) 106. 
E) 109. 
A) 86. 
B) 90. 
C) 95. 
D) 106. 
E) 109.

Question 13

Which one of the following would provide an example of social inflation?

Accepted Answer

A) Large malpractice awards beyond the level of damages incurred 
B) Increase in costs on auto physical damage claims 
C) Increase in prescription drug cost claims 
D) Losses to repair damages caused by hurricanes in Florida 
E) Rising cost of funeral expenses due to inflation 
A) Large malpractice awards beyond the level of damages incurred 
B) Increase in costs on auto physical damage claims 
C) Increase in prescription drug cost claims 
D) Losses to repair damages caused by hurricanes in Florida 
E) Rising cost of funeral expenses due to inflation

Question 14

In terms of dollar costs,the worst U.S. catastrophe since 2000 was caused by

Accepted Answer

A) the terrorist attacks on the World Trade Center and the Pentagon. 
B) Hurricane Katrina. 
C) the California fires of 2007. 
D) the Florida hurricanes of 2004. 
E) Hurricane Rita of 2005. 
A) the terrorist attacks on the World Trade Center and the Pentagon. 
B) Hurricane Katrina. 
C) the California fires of 2007. 
D) the Florida hurricanes of 2004. 
E) Hurricane Rita of 2005.

Question 15

The primary regulator of insurance firms is the

Accepted Answer

A) NAIC. 
B) McCarran-Ferguson Commission. 
C) FDIC. 
D) state insurance regulator. 
E) SEC. 
A) NAIC. 
B) McCarran-Ferguson Commission. 
C) FDIC. 
D) state insurance regulator. 
E) SEC.

Why do P&C insurers place a large percentage of their investments in bonds and maintain large surpluses?

An insurance line has a loss ratio of 72 percent and an expense ratio of 35 percent,and the firm pays 2 percent of premiums to policyholders as dividends. What level of investment yield is needed to make the P&C firm break even?

What additional flexibilities are provided by variable and universal life as compared to a standard whole life or endowment policy?

Halliburton was allowed to bankrupt one of its subsidiaries in settlements of lawsuits on asbestos cases. What are the pros and cons of allowing a firm to limit its liability by shifting the liability to only one subsidiary rather than placing all of the corporation's assets at risk?

Property and casualty insurers hold _ short-term assets than life insurers because property and casualty loss rates are _ predictable than life insurance loss rates.

Premiums on standard annual renewable term life will generally increase as the policyholder ages.

The best underwriting performance since 1936 in terms of the combined ratio occurred during ____________ for property and casualty insurers.

What are the main lines of P&C insurance?

The cash surrender value of a life insurance policy is the present value of expected future payouts on the policy.

An insurance line has a pure loss ratio of 65 percent,LAE of 16 percent and an expense ratio of 26 percent; the firm pays 3 percent of premiums to policyholders as dividends and has an investment yield to premium ratio of 6 percent. Which one of the following statements is true?

An insurance line has a loss ratio of 62 percent and an expense ratio of 35 percent; the firm pays 2 percent of premiums to policyholders as dividends and has an investment yield to premium ratio of 9 percent. The operating ratio for this line is

Which one of the following would provide an example of social inflation?

In terms of dollar costs,the worst U.S. catastrophe since 2000 was caused by

The primary regulator of insurance firms is the

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

Exam 15: Insurance Companies

Why do P&C insurers place a large percentage of their investments in bonds and maintain large surpluses?

An insurance line has a loss ratio of 72 percent and an expense ratio of 35 percent,and the firm pays 2 percent of premiums to policyholders as dividends. What level of investment yield is needed to make the P&C firm break even?

What additional flexibilities are provided by variable and universal life as compared to a standard whole life or endowment policy?

Halliburton was allowed to bankrupt one of its subsidiaries in settlements of lawsuits on asbestos cases. What are the pros and cons of allowing a firm to limit its liability by shifting the liability to only one subsidiary rather than placing all of the corporation's assets at risk?

Property and casualty insurers hold _____________ short-term assets than life insurers because property and casualty loss rates are _____________ predictable than life insurance loss rates.

Premiums on standard annual renewable term life will generally increase as the policyholder ages.

The best underwriting performance since 1936 in terms of the combined ratio occurred during ____________ for property and casualty insurers.

What are the main lines of P&C insurance?

The cash surrender value of a life insurance policy is the present value of expected future payouts on the policy.

An insurance line has a pure loss ratio of 65 percent,LAE of 16 percent and an expense ratio of 26 percent; the firm pays 3 percent of premiums to policyholders as dividends and has an investment yield to premium ratio of 6 percent. Which one of the following statements is true?

An insurance line has a loss ratio of 62 percent and an expense ratio of 35 percent; the firm pays 2 percent of premiums to policyholders as dividends and has an investment yield to premium ratio of 9 percent. The operating ratio for this line is

Which one of the following would provide an example of social inflation?

In terms of dollar costs,the worst U.S. catastrophe since 2000 was caused by

The primary regulator of insurance firms is the

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

Property and casualty insurers hold _ short-term assets than life insurers because property and casualty loss rates are _ predictable than life insurance loss rates.