Question 1

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

Accepted Answer

A) net policy reserves. 
B) policy claims. 
C) premium and deposit funds. 
D) commission,taxes and expenses. 
A) net policy reserves. 
B) policy claims. 
C) premium and deposit funds. 
D) commission,taxes and expenses.

Question 2

Which of the following is NOT a possible result when a property-liability company purchases reinsurance?

Accepted Answer

A) improved capital position. 
B) limits on losses on reinsured policies. 
C) stabilized cash flows. 
D) dilution of earnings per share. 
A) improved capital position. 
B) limits on losses on reinsured policies. 
C) stabilized cash flows. 
D) dilution of earnings per share.

Question 3

The policy that will pay a specific dollar benefit to beneficiaries and remains in effect as long as premiums are paid is called whole life.

Accepted Answer

A) True 
 B)False

Question 4

PC insurers are forbidden from marketing similar products to both individuals and commercial firms.

Accepted Answer

A) True 
 B)False

Question 5

The McCarran-Ferguson Act of 1945

Accepted Answer

A) separated commercial banking from insurance activities. 
B) mandated federal insurance company charters. 
C) stipulated that insurance companies are to be regulated at the state level. 
D) initiated a national insurance guaranty fund. 
A) separated commercial banking from insurance activities. 
B) mandated federal insurance company charters. 
C) stipulated that insurance companies are to be regulated at the state level. 
D) initiated a national insurance guaranty fund.

Question 6

Life insurance companies also manage private pension plans that may include guaranteed investment contracts (GICs).

Accepted Answer

A) True 
 B)False

Question 7

The largest property-casualty (PC)insurance companies have become less influential over the past decade.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following did NOT occur in the life insurance industry during the most recent financial crisis?

Accepted Answer

A) Low equity values reduced asset-based fees on separate account assets. 
B) Losses were incurred on holdings of commercial mortgage-backed securities and commercial loans. 
C) Asset-based fees declined on products such as variable annuities and pension fund assets that were tied to equity returns. 
D) Low interest rates and harsh economic conditions caused many policyholders to terminate or surrender their policies. 
E) Historically low interest rates caused increased demand for whole life policies. 
A) Low equity values reduced asset-based fees on separate account assets. 
B) Losses were incurred on holdings of commercial mortgage-backed securities and commercial loans. 
C) Asset-based fees declined on products such as variable annuities and pension fund assets that were tied to equity returns. 
D) Low interest rates and harsh economic conditions caused many policyholders to terminate or surrender their policies. 
E) Historically low interest rates caused increased demand for whole life policies.

Question 9

The operating ratio for a PC insurer equals

Accepted Answer

A) loss ratio plus the ratios of loss adjustment expenses to premiums earned. 
B) loss ratio plus expense ratio plus dividend ratio. 
C) combined ratio minus dividends paid to policyholders. 
D) acquisition costs plus dividends paid as a proportion of premiums earned. 
E) combined ratio after dividends minus the investment yield. 
A) loss ratio plus the ratios of loss adjustment expenses to premiums earned. 
B) loss ratio plus expense ratio plus dividend ratio. 
C) combined ratio minus dividends paid to policyholders. 
D) acquisition costs plus dividends paid as a proportion of premiums earned. 
E) combined ratio after dividends minus the investment yield.

Question 10

Unlike the banking industry,globalization of financial services is having little or no effect on the insurance industry.

Accepted Answer

A) True 
 B)False

Question 11

Automobile liability insurance provides protection against theft or damage to the vehicle.

Accepted Answer

A) True 
 B)False

Question 12

As of 2015,there were less than 900 life insurance companies and aggregate industry assets were approximately $6.5 trillion.

Accepted Answer

A) True 
 B)False

Question 13

If losses on a particular line of fire insurance were $430 million,premiums earned were $595 million,and loss adjustment expenses were $95 million,the combined ratio would be

Accepted Answer

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

Question 14

Calculate the annual cash flows of a $2 million,10-year fixed-payment deferred annuity earning a guaranteed 8 percent per year if annual payments are to begin at the end of the sixth (6th)year.

Accepted Answer

A) $218,973.21. 
B) $202,752.97. 
C) $343,321.86. 
D) $405,505.95. 
E) $437,946.42. 
A) $218,973.21. 
B) $202,752.97. 
C) $343,321.86. 
D) $405,505.95. 
E) $437,946.42.

Question 15

Which of the following observations concerning reinsurance is FALSE?

Accepted Answer

A) It is an alternative to managing risk on a PC insurer's balance sheet. 
B) Non-U.S.reinsurers are majority players in U.S.reinsurance business. 
C) It does not enable the insurer to improve its capital position. 
D) It can be used to limit losses and stabilize cash flows. 
A) It is an alternative to managing risk on a PC insurer's balance sheet. 
B) Non-U.S.reinsurers are majority players in U.S.reinsurance business. 
C) It does not enable the insurer to improve its capital position. 
D) It can be used to limit losses and stabilize cash flows.

Question 16

Calculate the annual cash flows of a $2 million,10-year fixed-payment annuity earning a guaranteed 8 percent annually if the payments are to start at the end of this year.

Accepted Answer

A) $137,990.27. 
B) $275,980.53. 
C) $298,058.98. 
D) $149,029.49. 
A) $137,990.27. 
B) $275,980.53. 
C) $298,058.98. 
D) $149,029.49.

Question 17

The benefit payment of a credit life policy usually varies based on the outstanding principal and interest of the loan it is intended to insure.

Accepted Answer

A) True 
 B)False

Question 18

The largest line of life insurance in terms of total contract value in the U.S.is

Accepted Answer

A) ordinary life. 
B) group life. 
C) industrial life. 
D) credit life. 
A) ordinary life. 
B) group life. 
C) industrial life. 
D) credit life.

Question 19

The policy reserves on the liability side of the balance sheet of a life insurance company are estimated based on actuarial assumptions of expected future liability commitments on currently existing contracts.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is pure life insurance with a savings element built in?

Accepted Answer

A) term life 
B) universal life 
C) endowment life 
D) variable universal life 
A) term life 
B) universal life 
C) endowment life 
D) variable universal life

Exam 6: Financial Services: Insurance Companies

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

Which of the following is NOT a possible result when a property-liability company purchases reinsurance?

The policy that will pay a specific dollar benefit to beneficiaries and remains in effect as long as premiums are paid is called whole life.

PC insurers are forbidden from marketing similar products to both individuals and commercial firms.

The McCarran-Ferguson Act of 1945

Life insurance companies also manage private pension plans that may include guaranteed investment contracts (GICs).

The largest property-casualty (PC)insurance companies have become less influential over the past decade.

Which of the following did NOT occur in the life insurance industry during the most recent financial crisis?

The operating ratio for a PC insurer equals

Unlike the banking industry,globalization of financial services is having little or no effect on the insurance industry.

Automobile liability insurance provides protection against theft or damage to the vehicle.

As of 2015,there were less than 900 life insurance companies and aggregate industry assets were approximately $6.5 trillion.

If losses on a particular line of fire insurance were $430 million,premiums earned were $595 million,and loss adjustment expenses were $95 million,the combined ratio would be

Calculate the annual cash flows of a $2 million,10-year fixed-payment deferred annuity earning a guaranteed 8 percent per year if annual payments are to begin at the end of the sixth (6th)year.

Which of the following observations concerning reinsurance is FALSE?

Calculate the annual cash flows of a $2 million,10-year fixed-payment annuity earning a guaranteed 8 percent annually if the payments are to start at the end of this year.

The benefit payment of a credit life policy usually varies based on the outstanding principal and interest of the loan it is intended to insure.

The largest line of life insurance in terms of total contract value in the U.S.is

The policy reserves on the liability side of the balance sheet of a life insurance company are estimated based on actuarial assumptions of expected future liability commitments on currently existing contracts.

Which of the following is pure life insurance with a savings element built in?

Why Are Financial Institutions Special

Financial Services: Depository Institutions

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Financial Services: Securities Firms and Investment Banks

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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

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Swaps

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Calculate the annual cash flows of a $2 million,10-year fixed-payment deferred annuity earning a guaranteed 8 percent per year if annual payments are to begin at the end of the sixth (6^th)year.