Question 1

Loss adjustment expenses refer to the costs surrounding the loss settlement process.

Accepted Answer

A) True 
 B)False

Question 2

Annuities are popular retirement savings products because investment returns on contributions are tax-deferred.

Accepted Answer

A) True 
 B)False

Question 3

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. 
E) -$75 million 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. 
E) -$75 million implying that this line of insurance is unprofitablE.

Question 4

For property-casualty insurers, loss rates are more predictable for

Accepted Answer

A) low-severity high-frequency events. 
B) low-severity low-frequency events. 
C) high-severity high-frequency events. 
D) high severity low-frequency events. 
E) low severity medium-frequency events. 
A) low-severity high-frequency events. 
B) low-severity low-frequency events. 
C) high-severity high-frequency events. 
D) high severity low-frequency events. 
E) low severity medium-frequency events.

Question 5

You start an annuity with $1million and expect to receive 12 equal payments beginning at the end of the first year. The guaranteed annual interest rate is 6 percent. The annual payments that you expect to collect are

Accepted Answer

A) $88,333.33. 
B) $119,277.03. 
C) $59,638.51. 
D) $56,262.75. 
E) $112,525.50. 
A) $88,333.33. 
B) $119,277.03. 
C) $59,638.51. 
D) $56,262.75. 
E) $112,525.50.

Question 6

An insurance company collected $31.0 million in premiums and disbursed $28 million in losses. Loss adjustment expenses amounted to $5.0 million. The firm is profitable

Accepted Answer

A) if dividends paid to policyholders is $4 million and income generated on investments is $4 million. 
B) if dividends paid to policyholders is $10 million and income generated on investments is $14 million. 
C) if dividends paid to policyholders is $6 million and income generated on investments is $2 million. 
D) if dividends paid to policyholders is $10 million and income generated on investments is $4 million. 
E) if dividends paid to policyholders is $4 million and income generated on investments is $2 million. 
A) if dividends paid to policyholders is $4 million and income generated on investments is $4 million. 
B) if dividends paid to policyholders is $10 million and income generated on investments is $14 million. 
C) if dividends paid to policyholders is $6 million and income generated on investments is $2 million. 
D) if dividends paid to policyholders is $10 million and income generated on investments is $4 million. 
E) if dividends paid to policyholders is $4 million and income generated on investments is $2 million.

Question 7

By 2012, life insurance companies were managing approximately 40% of all private pension plans.

Accepted Answer

A) True 
 B)False

Question 8

As of 2012, assets of property-casualty insurers totaled approximately ________, which was ______ of the assets of the life insurance industry.

Accepted Answer

A) $900 billion; 20 percent 
B) $1,600 billion; 30 percent 
C) $4,250 billion; 90 percent 
D) $5,750 billion; 105 percent 
E) $7,700 billion; 120 percent 
A) $900 billion; 20 percent 
B) $1,600 billion; 30 percent 
C) $4,250 billion; 90 percent 
D) $5,750 billion; 105 percent 
E) $7,700 billion; 120 percent

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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. 
E) limited insurance company assets to low risk government securities. 
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. 
E) limited insurance company assets to low risk government securities.

Question 11

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. 
E) product liability and farm owner multiple peril. 
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. 
E) product liability and farm owner multiple peril.

Question 12

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

Question 13

Variable universal life insurance policies

Accepted Answer

A) have fixed premiums and a fixed benefit payout. 
B) have fixed premiums, but allow the benefit payout to vary with investment returns. 
C) have a fixed benefit payout, but allow the premium to vary with investment returns. 
D) allow both the premium and benefit payout to vary with investment returns. 
E) allow both the premium and benefit payout to vary with investment returns, but have a fixed maturity date. 
A) have fixed premiums and a fixed benefit payout. 
B) have fixed premiums, but allow the benefit payout to vary with investment returns. 
C) have a fixed benefit payout, but allow the premium to vary with investment returns. 
D) allow both the premium and benefit payout to vary with investment returns. 
E) allow both the premium and benefit payout to vary with investment returns, but have a fixed maturity date.

Question 14

An insurance policy that protects an individual over an entire lifetime as long as the premiums are paid is called

Accepted Answer

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

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

A permanent guarantee fund for the insurance industry does not exist.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Calculate the annual cash flows of a $500,000, 12-year fixed-payment deferred annuity earning a guaranteed 5 percent per year if annual payments are to begin at the end of year 4.

Accepted Answer

A) $32,652.38. 
B) $79,018.76. 
C) $62,195.01. 
D) $65,304.76. 
E) $31,097.50. 
A) $32,652.38. 
B) $79,018.76. 
C) $62,195.01. 
D) $65,304.76. 
E) $31,097.50.

Question 19

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

Question 20

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

Exam 6: Financial Services: Insurance

Loss adjustment expenses refer to the costs surrounding the loss settlement process.

Annuities are popular retirement savings products because investment returns on contributions are tax-deferred.

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

For property-casualty insurers, loss rates are more predictable for

You start an annuity with $1million and expect to receive 12 equal payments beginning at the end of the first year. The guaranteed annual interest rate is 6 percent. The annual payments that you expect to collect are

An insurance company collected $31.0 million in premiums and disbursed $28 million in losses. Loss adjustment expenses amounted to $5.0 million. The firm is profitable

By 2012, life insurance companies were managing approximately 40% of all private pension plans.

As of 2012, assets of property-casualty insurers totaled approximately ________, which was ______ of the assets of the life insurance industry.

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

The McCarran-Ferguson Act of 1945

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

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?

Variable universal life insurance policies

An insurance policy that protects an individual over an entire lifetime as long as the premiums are paid is called

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

A permanent guarantee fund for the insurance industry does not exist.

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

Calculate the annual cash flows of a $500,000, 12-year fixed-payment deferred annuity earning a guaranteed 5 percent per year if annual payments are to begin at the end of year 4.

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

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

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

As of 2012, assets of property-casualty insurers totaled approximately __, which was of the assets of the life insurance industry.