Question 1

Property-casualty insurers tend to have a higher level of liquidity risk than life insurers.

Accepted Answer

A) True 
 B)False

Question 2

As of 2012, the primary regulator of both the life and property-casualty insurance industry is/are the

Accepted Answer

A) state insurance commissions. 
B) NAIC. 
C) Federal Reserve. 
D) IRIS. 
E) new federal oversight commission yet to be named. 
A) state insurance commissions. 
B) NAIC. 
C) Federal Reserve. 
D) IRIS. 
E) new federal oversight commission yet to be named.

Question 3

Guaranteed investment contracts (GICs) offered by a life insurance company

Accepted Answer

A) are endowment life policies marketed to group insurance policyholders. 
B) are short- and medium-term debt instruments sold to fund their pension plan business. 
C) can only be purchased by a group life insurance plan. 
D) earn a return based on the consumer price index (CPI). 
E) Short- and medium-term investments in venture capital firms. 
A) are endowment life policies marketed to group insurance policyholders. 
B) are short- and medium-term debt instruments sold to fund their pension plan business. 
C) can only be purchased by a group life insurance plan. 
D) earn a return based on the consumer price index (CPI). 
E) Short- and medium-term investments in venture capital firms.

Question 4

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

Accepted Answer

A) cash. 
B) bonds. 
C) common stock. 
D) short-term securities. 
E) mortgages and mortgage-backed investments. 
A) cash. 
B) bonds. 
C) common stock. 
D) short-term securities. 
E) mortgages and mortgage-backed investments.

Question 5

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 6

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 7

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 8

The primary function of insurance companies is to

Accepted Answer

A) generate fees for the banks that sell insurance products. 
B) sell a variety of consumer investment products. 
C) protect policyholders from adverse events. 
D) assist in the transfer of wealth into the future. 
E) provide contracts that encourage policyholders to save current income. 
A) generate fees for the banks that sell insurance products. 
B) sell a variety of consumer investment products. 
C) protect policyholders from adverse events. 
D) assist in the transfer of wealth into the future. 
E) provide contracts that encourage policyholders to save current income.

Question 9

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

Question 10

If the loss ratio on a line of insurance is 70 percent and loss adjustment expenses are 33 percent, then the line is profitable before dividends if the ratio of

Accepted Answer

A) commissions and other expenses are 15 percent and investment yields are 10 percent. 
B) commissions and other expenses are 5 percent and investment yields are 6 percent. 
C) commissions and other expenses are 16 percent and investment yields are 20 percent 
D) commissions and other expenses are 15 percent and investment yields are 12 percent. 
E) commissions and other expenses are 6 percent and investment yields are 4 percent. 
A) commissions and other expenses are 15 percent and investment yields are 10 percent. 
B) commissions and other expenses are 5 percent and investment yields are 6 percent. 
C) commissions and other expenses are 16 percent and investment yields are 20 percent 
D) commissions and other expenses are 15 percent and investment yields are 12 percent. 
E) commissions and other expenses are 6 percent and investment yields are 4 percent.

Question 11

Insurance guarantee funds are administered by federal insurance regulators.

Accepted Answer

A) True 
 B)False

Question 12

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. 
E) None of the above are correct. 
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. 
E) None of the above are correct.

Question 13

By regulation, the payments on an annuity contract must stop when the annuity holder dies.

Accepted Answer

A) True 
 B)False

Question 14

As currently structured, state guarantee funds will continue to collect premium payments and honor life policies and annuity obligations of a failed insurance company.

Accepted Answer

A) True 
 B)False

Question 15

For property-casualty insurers, losses are higher for lines that are exposed to

Accepted Answer

A) long tails and low inflation. 
B) long tails and high inflation. 
C) short tails and low inflation. 
D) short tails and high inflation. 
E) short tails and no inflation. 
A) long tails and low inflation. 
B) long tails and high inflation. 
C) short tails and low inflation. 
D) short tails and high inflation. 
E) short tails and no inflation.

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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

Question 18

A term life policy allows the policyholder to vary the maturity of the policy.

Accepted Answer

A) True 
 B)False

Question 19

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 20

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

Accepted Answer

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

Exam 6: Financial Services: Insurance

Property-casualty insurers tend to have a higher level of liquidity risk than life insurers.

As of 2012, the primary regulator of both the life and property-casualty insurance industry is/are the

Guaranteed investment contracts (GICs) offered by a life insurance company

The largest asset on property-casualty insurers' balance sheet as of 2012 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.

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

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.

The primary function of insurance companies is to

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.

If the loss ratio on a line of insurance is 70 percent and loss adjustment expenses are 33 percent, then the line is profitable before dividends if the ratio of

Insurance guarantee funds are administered by federal insurance regulators.

Annuities offered by life insurance companies are a financial contract that

By regulation, the payments on an annuity contract must stop when the annuity holder dies.

As currently structured, state guarantee funds will continue to collect premium payments and honor life policies and annuity obligations of a failed insurance company.

For property-casualty insurers, losses are higher for lines that are exposed to

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

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

A term life policy allows the policyholder to vary the maturity of the policy.

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

The largest liability 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

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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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