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

Although life insurance companies also provide health and accident insurance, they underwrite less than 35% of all health insurance policies.

Accepted Answer

A) True 
 B)False

Question 3

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. 
E) conduct more separate accounts business 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. 
E) conduct more separate accounts business than life insurance firms.

Question 4

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

Question 5

An insurance policy in which fixed premium payments are invested in mutual funds of stocks, bonds, and money market instruments 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 6

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 7

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. 
E) $220,000.00. 
A) $137,990.27. 
B) $275,980.53. 
C) $298,058.98. 
D) $149,029.49. 
E) $220,000.00.

Question 8

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. 
E) 0.22 implying that this line of insurance is profitablE. 
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. 
E) 0.22 implying that this line of insurance is profitablE.

Question 9

As currently structured, contributions to a state-sponsored guarantee fund are collected only after the actual failure of an insurance company.

Accepted Answer

A) True 
 B)False

Question 10

Underwriting risk faced by property-casualty insurance companies may result from unexpected

Accepted Answer

A) increases in loss rates. 
B) decreases in loss adjustment expenses. 
C) increases in investment yields. 
D) cancellations of policies by customers. 
E) increases in policy premiums. 
A) increases in loss rates. 
B) decreases in loss adjustment expenses. 
C) increases in investment yields. 
D) cancellations of policies by customers. 
E) increases in policy premiums.

Question 11

Separate accounts business of a life insurance company represents

Accepted Answer

A) policies written that cover individuals as a group. 
B) liabilities owed to other life insurance companies as a result of reinsurance. 
C) the cumulative cash value paid to policyholders if the policies are terminated before maturity. 
D) a fund established separately from the other funds of the insurance company and invested without regard to the usual diversification restrictions. 
E) the cumulative price that the company may repurchase policies from existing customers. 
A) policies written that cover individuals as a group. 
B) liabilities owed to other life insurance companies as a result of reinsurance. 
C) the cumulative cash value paid to policyholders if the policies are terminated before maturity. 
D) a fund established separately from the other funds of the insurance company and invested without regard to the usual diversification restrictions. 
E) the cumulative price that the company may repurchase policies from existing customers.

Question 12

Insurance companies have resisted the investment in technology that banks and other financial service firms have pursued.

Accepted Answer

A) True 
 B)False

Question 13

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 14

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

Question 15

As of 2011, ordinary life accounted for approximately 80% of policies in force.

Accepted Answer

A) True 
 B)False

Question 16

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. 
E) are regulated by the Federal Reserve Bank. 
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. 
E) are regulated by the Federal Reserve Bank.

Question 17

In general, maximum levels of losses in the property-casualty industry are more predictable for liability lines than for property lines.

Accepted Answer

A) True 
 B)False

Question 18

The insurance company that was the largest beneficiary of federal bailout funds during the most recent financial crisis was

Accepted Answer

A) Globe Life. 
B) UBS. 
C) State Farm. 
D) AIG. 
E) New York Life. 
A) Globe Life. 
B) UBS. 
C) State Farm. 
D) AIG. 
E) New York Life.

Question 19

The surrender value of an insurance policy is

Accepted Answer

A) the expected payment commitment on existing policy contracts. 
B) a fund established and held separately from the company's other assets. 
C) the cash value paid to the policyholder if the policy is terminated before it matures. 
D) the same as the endowment payout. 
E) the price at which the company may repurchase the policy. 
A) the expected payment commitment on existing policy contracts. 
B) a fund established and held separately from the company's other assets. 
C) the cash value paid to the policyholder if the policy is terminated before it matures. 
D) the same as the endowment payout. 
E) the price at which the company may repurchase the 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. 
E) Social inflation. 
A) Short-tail losses. 
B) Adverse selection. 
C) Moral hazard. 
D) Long-tail losses. 
E) Social inflation.

Exam 6: Financial Services: Insurance

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

Although life insurance companies also provide health and accident insurance, they underwrite less than 35% of all health insurance policies.

Higher uncertainty of losses forces property-casualty firms to

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

An insurance policy in which fixed premium payments are invested in mutual funds of stocks, bonds, and money market instruments is called

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

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.

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

As currently structured, contributions to a state-sponsored guarantee fund are collected only after the actual failure of an insurance company.

Underwriting risk faced by property-casualty insurance companies may result from unexpected

Separate accounts business of a life insurance company represents

Insurance companies have resisted the investment in technology that banks and other financial service firms have pursued.

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

As of 2011, ordinary life accounted for approximately 80% of policies in force.

Life insurance guaranty funds

In general, maximum levels of losses in the property-casualty industry are more predictable for liability lines than for property lines.

The insurance company that was the largest beneficiary of federal bailout funds during the most recent financial crisis was

The surrender value of an insurance policy is

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 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