Question 1

If losses on a particular line of medical malpractice insurance were $650 million and premiums earned were $575 million,the loss ratio would be

Accepted Answer

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

Question 2

In recent years,the total assets of insurance companies in the U.S.have been decreasing.

Accepted Answer

A) True 
 B)False

Question 3

Hurricane Sandy,which struck the east coast of the United States in 2012,continues to be the worst catastrophe for the PC industry.

Accepted Answer

A) True 
 B)False

Question 4

Adverse selection cannot be reduced by insurance companies so it is considered to be a cost of doing business.

Accepted Answer

A) True 
 B)False

Question 5

The two policy categories offered by property-casualty insurers that are most likely to be subject to rate regulation 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. 
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.

Question 6

Although life insurance companies also provide health and accident insurance,they underwrite less than 35% of all health insurance policies.

Accepted Answer

A) True 
 B)False

Question 7

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 8

Which account refers to the reserve set-aside that contains the portion of a premium that has been paid before insurance coverage has been provided?

Accepted Answer

A) Unearned premiums. 
B) Prepaid premiums. 
C) Premium reserves. 
D) Policy reserves. 
A) Unearned premiums. 
B) Prepaid premiums. 
C) Premium reserves. 
D) Policy reserves.

Question 9

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

Accepted Answer

A) Globe Life. 
B) UBS. 
C) State Farm. 
D) AIG. 
A) Globe Life. 
B) UBS. 
C) State Farm. 
D) AIG.

Question 10

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

Question 11

The largest liability on property-casualty insurers' balance sheet as of 2015 was

Accepted Answer

A) loss reserve and loss adjustment expenses. 
B) unearned premiums. 
C) cash. 
D) policyholder surplus. 
A) loss reserve and loss adjustment expenses. 
B) unearned premiums. 
C) cash. 
D) policyholder surplus.

Question 12

Due to a recent increase in demand for new insurance products,the number of life insurance companies as been increasing in the United States.

Accepted Answer

A) True 
 B)False

Question 13

Industry leaders appear to be increasing their share of the PC business over time.

Accepted Answer

A) True 
 B)False

Question 14

Unexpected increases in inflation cause loss rates to increase more for long-tail risk than for short-tail risks.

Accepted Answer

A) True 
 B)False

Question 15

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. 
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.

Question 16

The largest asset category on the balance sheet of U.S.life insurance companies as of 2015 was

Accepted Answer

A) government securities. 
B) corporate bonds. 
C) corporate stock. 
D) cash. 
A) government securities. 
B) corporate bonds. 
C) corporate stock. 
D) cash.

Question 17

The payments from an annuity offered by a life insurance company can either begin immediately or may be deferred to start at some future date.

Accepted Answer

A) True 
 B)False

Question 18

Adverse selection is a situation where customers who most need insurance are more likely to apply for insurance.

Accepted Answer

A) True 
 B)False

Question 19

Property insurance involves coverage against the loss of personal property as well as protection against legal liability claims.

Accepted Answer

A) True 
 B)False

Question 20

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. 
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.

Exam 6: Financial Services: Insurance Companies

If losses on a particular line of medical malpractice insurance were $650 million and premiums earned were $575 million,the loss ratio would be

In recent years,the total assets of insurance companies in the U.S.have been decreasing.

Hurricane Sandy,which struck the east coast of the United States in 2012,continues to be the worst catastrophe for the PC industry.

Adverse selection cannot be reduced by insurance companies so it is considered to be a cost of doing business.

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

Although life insurance companies also provide health and accident insurance,they underwrite less than 35% of all health insurance policies.

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

Which account refers to the reserve set-aside that contains the portion of a premium that has been paid before insurance coverage has been provided?

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

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.

The largest liability on property-casualty insurers' balance sheet as of 2015 was

Due to a recent increase in demand for new insurance products,the number of life insurance companies as been increasing in the United States.

Industry leaders appear to be increasing their share of the PC business over time.

Unexpected increases in inflation cause loss rates to increase more for long-tail risk than for short-tail risks.

Annuities offered by life insurance companies are a financial contract that

The largest asset category on the balance sheet of U.S.life insurance companies as of 2015 was

The payments from an annuity offered by a life insurance company can either begin immediately or may be deferred to start at some future date.

Adverse selection is a situation where customers who most need insurance are more likely to apply for insurance.

Property insurance involves coverage against the loss of personal property as well as protection against legal liability claims.

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

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Firms and Investment Banks

Financial Services: Mutual Fund and Hedge Fund Companies

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loan Risk

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

Filters