Question 1

The operating ratio is calculated as

Accepted Answer

A) the loss ratio minus the underwriting cycle lag. 
B) the loss ratio plus the loss adjustment expense ratio plus the commission to premium ratio. 
C) the combined ratio after dividends minus the investment yield. 
D) the combined ratio minus the loss ratio. 
E) none of these options are correct. 
A) the loss ratio minus the underwriting cycle lag. 
B) the loss ratio plus the loss adjustment expense ratio plus the commission to premium ratio. 
C) the combined ratio after dividends minus the investment yield. 
D) the combined ratio minus the loss ratio. 
E) none of these options are correct.

Question 2

Property and casualty insurers hold ________ short-term assets than life insurers because property and casualty loss rates are ________ predictable than life insurance loss rates.

Accepted Answer

A) more; more 
B) more; less 
C) less; less 
D) less; more 
E) no; highly 
A) more; more 
B) more; less 
C) less; less 
D) less; more 
E) no; highly

Question 3

What is separate account business? How important is it to life insurers?

Accepted Answer

Assets managed by the life insurer on be

Question 4

The term "variable" in a variable life policy refers to the

Accepted Answer

A) policyholder's ability to vary the premiums. 
B) insurer's ability to vary the rate of return on the policy. 
C) variable growth rate of the cash value of the policy. 
D) insurer's ability to vary the premiums. 
E) the policyholder's ability to cancel the plan. 
A) policyholder's ability to vary the premiums. 
B) insurer's ability to vary the rate of return on the policy. 
C) variable growth rate of the cash value of the policy. 
D) insurer's ability to vary the premiums. 
E) the policyholder's ability to cancel the plan.

Question 5

What is the operating ratio for this line? Is the line profitable?

Accepted Answer

Since the operating ratio is l

Question 6

Life insurers write over 50 percent of all health insurance premiums.

Accepted Answer

A) True 
 B)False

Question 7

A man has what he believes is a mild heart attack but he doesn't go to the hospital. Instead he calls his insurance agent and doubles the amount of his life insurance. This is an example of the moral hazard problem in insurance.

Accepted Answer

A) True 
 B)False

Question 8

Property loss risk is generally easier to estimate than liability loss risk.

Accepted Answer

A) True 
 B)False

Question 9

The National Association of Insurance Commissions (NAIC)examines and regulates insurance companies.

Accepted Answer

A) True 
 B)False

Question 10

The P&C loss ratio on an insurance line contains
I. payouts on claims.
II. brokerage commissions incurred to market the claims.
III. costs associated with settling claims.
IV. dividend payouts to policyholders.

Accepted Answer

A) I and II only 
B) I,III,and IV only 
C) I and III only 
D) II and IV only 
E) III and IV only 
A) I and II only 
B) I,III,and IV only 
C) I and III only 
D) II and IV only 
E) III and IV only

Question 11

Insurance companies charge different premiums to people based on preexisting health conditions in order to reduce the adverse selection problem.

Accepted Answer

A) True 
 B)False

Question 12

What three main sources of underwriter risk exist for P&C insurers?

Accepted Answer

-Unexpected increases in loss

Question 13

Life insurance policy reserves are the estimated current worth of expected future payouts.

Accepted Answer

A) True 
 B)False

Question 14

The McFadden Act grants states the primary right to regulate insurance companies.

Accepted Answer

A) True 
 B)False

Question 15

The two major components of expense risk for P&C insurers are

Accepted Answer

A) the combined ratio and the premium ratio. 
B) loss adjustment expenses and variations in commission and other expenses. 
C) investment yield and premiums earned. 
D) dividend ratio and investment yield. 
E) none of these options are correct. 
A) the combined ratio and the premium ratio. 
B) loss adjustment expenses and variations in commission and other expenses. 
C) investment yield and premiums earned. 
D) dividend ratio and investment yield. 
E) none of these options are correct.

Question 16

Why do P&C insurers place a large percentage of their investments in bonds and maintain large surpluses?

Accepted Answer

P&C insurers need stable cash flows to o

Question 17

Which of the following statements are true?
I. Catastrophe bonds may be used as a form of reinsurance.
II. Catastrophe bonds are structured so that if an insured event results in large losses for an insurer,the bond's required payments increase.
III. Buyers of catastrophe bonds benefit if the adverse event occurs.
IV. When issued,catastrophe bonds will have promised yields above the risk-free rate.

Accepted Answer

A) I and II only 
B) I and IV only 
C) II and III only 
D) II and IV only 
E) III and IV only 
A) I and II only 
B) I and IV only 
C) II and III only 
D) II and IV only 
E) III and IV only

Question 18

In property and casualty insurance the combined ratio is equal to ________ divided by total premiums written.

Accepted Answer

A) the sum of the loss ratio plus loss adjustment expenses 
B) the sum of the loss ratio plus the expense ratio 
C) the operating ratio minus dividends paid to policyholders 
D) the nominal ratio plus the real ratio 
E) 1 minus the operating ratio 
A) the sum of the loss ratio plus loss adjustment expenses 
B) the sum of the loss ratio plus the expense ratio 
C) the operating ratio minus dividends paid to policyholders 
D) the nominal ratio plus the real ratio 
E) 1 minus the operating ratio

Question 19

The best underwriting performance since 1936 in terms of the combined ratio occurred during ________ for property and casualty insurers.

Accepted Answer

A) 1999 and 2000 
B) 2001 and 2002 
C) 2002 and 2003 
D) 2004 and 2005 
E) 2006 and 2007 
A) 1999 and 2000 
B) 2001 and 2002 
C) 2002 and 2003 
D) 2004 and 2005 
E) 2006 and 2007

Question 20

The following type(s)of life insurance policies do not have a savings feature:

Accepted Answer

A) Term life 
B) Whole life 
C) Variable life 
D) Universal life 
E) Both variable life and universal life 
A) Term life 
B) Whole life 
C) Variable life 
D) Universal life 
E) Both variable life and universal life

Exam 15: Insurance Companies

The operating ratio is calculated as

Property and casualty insurers hold ________ short-term assets than life insurers because property and casualty loss rates are ________ predictable than life insurance loss rates.

What is separate account business? How important is it to life insurers?

The term "variable" in a variable life policy refers to the

What is the operating ratio for this line? Is the line profitable?

Life insurers write over 50 percent of all health insurance premiums.

A man has what he believes is a mild heart attack but he doesn't go to the hospital. Instead he calls his insurance agent and doubles the amount of his life insurance. This is an example of the moral hazard problem in insurance.

Property loss risk is generally easier to estimate than liability loss risk.

The National Association of Insurance Commissions (NAIC)examines and regulates insurance companies.

The P&C loss ratio on an insurance line contains I. payouts on claims. II. brokerage commissions incurred to market the claims. III. costs associated with settling claims. IV. dividend payouts to policyholders.

Insurance companies charge different premiums to people based on preexisting health conditions in order to reduce the adverse selection problem.

What three main sources of underwriter risk exist for P&C insurers?

Life insurance policy reserves are the estimated current worth of expected future payouts.

The McFadden Act grants states the primary right to regulate insurance companies.

The two major components of expense risk for P&C insurers are

Why do P&C insurers place a large percentage of their investments in bonds and maintain large surpluses?

In property and casualty insurance the combined ratio is equal to ________ divided by total premiums written.

The best underwriting performance since 1936 in terms of the combined ratio occurred during ________ for property and casualty insurers.

The following type(s)of life insurance policies do not have a savings feature:

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, monetary Policy, and Interest Rates

Money Markets

Bond Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, credit Unions, and Finance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters

Property and casualty insurers hold short-term assets than life insurers because property and casualty loss rates are predictable than life insurance loss rates.