Question 1

The largest liability on property-casualty insurers' balance sheet as of 2012 was

Accepted Answer

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

Question 2

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. 
E) does not exist in the insurance industry. 
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. 
E) does not exist in the insurance industry. C

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  True

Question 4

Term life insurance includes a savings element as well as the pure insurance element.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Property-casualty insurance involves

Accepted Answer

A) insurance coverage related to the loss of real and personal property. 
B) insurance protection against legal liability exposure. 
C) insurance protection against injuries in employment related work. 
D) Answers A and B only. 
E) Answers A and C only. 
A) insurance coverage related to the loss of real and personal property. 
B) insurance protection against legal liability exposure. 
C) insurance protection against injuries in employment related work. 
D) Answers A and B only. 
E) Answers A and C only.

Question 7

Annuities are an important product sold by life insurance companies. Which of the following statements is correct as of 2012?

Accepted Answer

A) Life insurance contracts continue to dominate premiums written while annuities are of less importance. 
B) The value of annuity sales are more than double those of traditional life insurance lines. 
C) Retirement accounts and private pension plans are not allowed access to the annuities of life insurance companies. 
D) The funds in an annuity can only be invested in guaranteed investment contracts (GICs). 
E) All annuities are listed as separate accounts business on the life insurer's balance sheet. 
A) Life insurance contracts continue to dominate premiums written while annuities are of less importance. 
B) The value of annuity sales are more than double those of traditional life insurance lines. 
C) Retirement accounts and private pension plans are not allowed access to the annuities of life insurance companies. 
D) The funds in an annuity can only be invested in guaranteed investment contracts (GICs). 
E) All annuities are listed as separate accounts business on the life insurer's balance sheet.

Question 8

The policyholder can vary the premium payments on an endowment life policy.

Accepted Answer

A) True 
 B)False

Question 9

Annuities are the reverse of life insurance in that they are different means of liquidating a fund.

Accepted Answer

A) True 
 B)False

Question 10

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

Question 11

The cash surrender value of a life insurance policy represents the payment to the insured's beneficiaries at the time of death.

Accepted Answer

A) True 
 B)False

Question 12

What is essentially understood to be insurance for property-casualty insurance companies?

Accepted Answer

A) Policy reserves. 
B) Conditional reserve funds. 
C) Reinsurance. 
D) Unearned premiums. 
E) Surplus notes. 
A) Policy reserves. 
B) Conditional reserve funds. 
C) Reinsurance. 
D) Unearned premiums. 
E) Surplus notes.

Question 13

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 above. 
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 above.

Question 14

As of 2012, chartering of life insurance companies can be done only at the state level.

Accepted Answer

A) True 
 B)False

Question 15

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. 
E) liabilities, because insurance companies must maintain a capital base to cover the payments of benefits. 
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. 
E) liabilities, because insurance companies must maintain a capital base to cover the payments of benefits.

Question 16

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 17

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 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

Loss exposures faced by insurers in accident and health lines are more similar to those faced by traditional life insurance than by property-casualty insurance.

Accepted Answer

A) True 
 B)False

Question 20

The largest asset category on the balance sheet of U.S. life insurance companies as of 2012 was

Accepted Answer

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

Exam 6: Financial Services: Insurance

The largest liability on property-casualty insurers' balance sheet as of 2012 was

The problem of adverse selection

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.

Term life insurance includes a savings element as well as the pure insurance element.

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

Property-casualty insurance involves

Annuities are an important product sold by life insurance companies. Which of the following statements is correct as of 2012?

The policyholder can vary the premium payments on an endowment life policy.

Annuities are the reverse of life insurance in that they are different means of liquidating a fund.

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

The cash surrender value of a life insurance policy represents the payment to the insured's beneficiaries at the time of death.

What is essentially understood to be insurance for property-casualty insurance companies?

Factors that affect the predictability of claims loss exposure include

As of 2012, chartering of life insurance companies can be done only at the state level.

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

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

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

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

Loss exposures faced by insurers in accident and health lines are more similar to those faced by traditional life insurance than by property-casualty insurance.

The largest asset category on the balance sheet of U.S. life insurance companies as of 2012 was

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Brokerage and Investment Banking

Financial Services: Mutual Funds and Hedge Funds

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