Question 1

The rate of growth in the annuities market is increasing primarily because of the recent changes in the capital gains tax rates.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

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 5

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

Question 6

Which of the following is used as collateral when an insurance company issues policy loans?

Accepted Answer

A) Expected premium payments. 
B) Existing policies. 
C) Unearned premiums. 
D) Guarantee funds. 
A) Expected premium payments. 
B) Existing policies. 
C) Unearned premiums. 
D) Guarantee funds.

Question 7

Which of the following insurance products protects a lender against a borrower's death prior to repayment of the debt?

Accepted Answer

A) Credit life. 
B) Universal life. 
C) Whole life. 
D) Endowment life. 
A) Credit life. 
B) Universal life. 
C) Whole life. 
D) Endowment life.

Question 8

Annuities must be purchased using a single lump sum of money.

Accepted Answer

A) True 
 B)False

Question 9

One reason for the recent decline in the expense ratio for PC insurers is an increase dependence on independent brokers to sell and distribute insurance policies.

Accepted Answer

A) True 
 B)False

Question 10

Insurance guarantee funds are administered by federal insurance regulators.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following involves fixed premium payments and a benefit payout at the time of death that will depend on investment returns over the life of the policy?

Accepted Answer

A) Term life. 
B) Variable life. 
C) Whole life. 
D) Endowment life. 
A) Term life. 
B) Variable life. 
C) Whole life. 
D) Endowment life.

Question 12

Higher uncertainty of losses forces property-casualty firms to

Accepted Answer

A) invest in more short-term assets than life insurance firms. 
B) invest in more long-term assets than life insurance firms. 
C) hold a lower percentage of capital and reserves than life insurance firms. 
D) invest in riskier equity securities than life insurance firms. 
A) invest in more short-term assets than life insurance firms. 
B) invest in more long-term assets than life insurance firms. 
C) hold a lower percentage of capital and reserves than life insurance firms. 
D) invest in riskier equity securities than life insurance firms.

Question 13

Pension fund management is a relatively small portion of the life insurance industry.

Accepted Answer

A) True 
 B)False

Question 14

Life insurance guaranty funds

Accepted Answer

A) are sponsored by state insurance regulators. 
B) involve a permanent reserve fund similar to the FDIC's bank deposit reserve. 
C) require uniform contributions from each state when there is a failure of an insurance company. 
D) make policyholder payments immediately in the event of an insurance company failure. 
A) are sponsored by state insurance regulators. 
B) involve a permanent reserve fund similar to the FDIC's bank deposit reserve. 
C) require uniform contributions from each state when there is a failure of an insurance company. 
D) make policyholder payments immediately in the event of an insurance company failure.

Question 15

Factors that affect the predictability of claims loss exposure include

Accepted Answer

A) unexpected increases in inflation. 
B) the frequency and severity of loss. 
C) the concept of long-tail risk. 
D) property versus liability coverage. 
E) All of the options. 
A) unexpected increases in inflation. 
B) the frequency and severity of loss. 
C) the concept of long-tail risk. 
D) property versus liability coverage. 
E) All of the options.

Question 16

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

Question 17

Life insurance companies tend to concentrate their investments at the longer term of the investment spectrum.

Accepted Answer

A) True 
 B)False

Question 18

Insurance companies can increase the spread between premium income and policy payouts only by increasing the premium payments.

Accepted Answer

A) True 
 B)False

Question 19

The problem of adverse selection

Accepted Answer

A) implies that many people who do not need insurance coverage have it through group plans. 
B) means that those people who apply for insurance are the least likely to need insurance coverage. 
C) causes insurance underwriters to alter the health statistics of the general population when determining appropriate premiums. 
D) creates a savings element along with the insurance component of the premium and policy. 
A) implies that many people who do not need insurance coverage have it through group plans. 
B) means that those people who apply for insurance are the least likely to need insurance coverage. 
C) causes insurance underwriters to alter the health statistics of the general population when determining appropriate premiums. 
D) creates a savings element along with the insurance component of the premium and policy.

Question 20

Which of the following arises in policies in which the insured event occurs during a coverage period but a claim is not filed or reported until many years later?

Accepted Answer

A) Short-tail losses. 
B) Adverse selection. 
C) Moral hazard. 
D) Long-tail losses. 
A) Short-tail losses. 
B) Adverse selection. 
C) Moral hazard. 
D) Long-tail losses.

Exam 6: Financial Services: Insurance Companies

The rate of growth in the annuities market is increasing primarily because of the recent changes in the capital gains tax rates.

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

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

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.

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

Which of the following is used as collateral when an insurance company issues policy loans?

Which of the following insurance products protects a lender against a borrower's death prior to repayment of the debt?

Annuities must be purchased using a single lump sum of money.

One reason for the recent decline in the expense ratio for PC insurers is an increase dependence on independent brokers to sell and distribute insurance policies.

Insurance guarantee funds are administered by federal insurance regulators.

Which of the following involves fixed premium payments and a benefit payout at the time of death that will depend on investment returns over the life of the policy?

Higher uncertainty of losses forces property-casualty firms to

Pension fund management is a relatively small portion of the life insurance industry.

Life insurance guaranty funds

Factors that affect the predictability of claims loss exposure include

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

Life insurance companies tend to concentrate their investments at the longer term of the investment spectrum.

Insurance companies can increase the spread between premium income and policy payouts only by increasing the premium payments.

The problem of adverse selection

Which of the following arises in policies in which the insured event occurs during a coverage period but a claim is not filed or reported until many years later?

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