Question 1

Which of the following may NOT involve a high degree of management judgment and subjectivity and may present risks of material misstatement due to fraud?

Accepted Answer

A)  Investments 
B)  Deferred acquisition costs 
C)  Reinsurance 
D)  key estimates

Question 2

Experience refund provisions of group insurance contracts are most often concerned with the manner of distributing any profits between the insurer and the insured group. The agreements usually contain provisions specifying how losses will affect the profit allocations for the insured group. In such situation:

Accepted Answer

A)  Losses may or may not be charged back 
B)  Losses can never be charged back 
C)  Gains are distributed according to the agreement between both the parties 
D)  If charged back, losses for each group are usually accumulated for a certain number of years

Question 3

Generally, residential loans are open to prepayment at any time without penalty. To protect against a deficiency, mortgage loans should not exceed the market value of the mortgaged property and in fact are usually made for:

Accepted Answer

A)  No more than 80 percent of the value 
B)  Not less than 80 percent of the value 
C)  No more than 90 percent of the value 
D)  Not less than 70 percent of the value

Question 4

Schedule H retains the identity of the Group Accident and Health and the Credit Accident and Health lines of business. However, in Schedule H the line of business designated as Other Accident and Health is subdivided to identify individual policies or elective options. Which of the following is/are out of those classifications?

Accepted Answer

A)  Collectively Renewable 
B)  Cancelable 
C)  Guaranteed renewable 
D)  Non-renewable for market reasons only

Question 5

The auditor should obtain a sufficient understanding by performing risk assessment procedures to:

Accepted Answer

A)  evaluate the design of controls not relevant to audit of financial statement 
B)  determine whether design of controls have been implemented 
C)  Both A & B 
D)  Neither A nor B

Question 6

A change in _______ or its application is appropriate if the change results in a measurement that is equally or more representative of fair value in the circumstances.

Accepted Answer

A)  Valuation technique 
B)  Value technique 
C)  Investment approach 
D)  Accounting corrections

Question 7

What method assumes that an entity's historical experience relating to the timeliness of settlement will be predictive of future results?

Accepted Answer

A)  Paid loss projection 
B)  Unpaid loss projection 
C)  Incurred loss projection 
D)  Loss ratio projection

Question 8

What is made on an instrument-by-instrument basis, generally when an instrument is initially recognized in the financial statements?

Accepted Answer

A)  Election 
B)  Disclosure 
C)  Eligibility 
D)  Discount

Question 9

Investments in equities by a life insurance company may not exceed the total of

Accepted Answer

A)  70 percent of the insurance company's regulatory capital 
B)  15 percent of the liabilities in respect of non-participating policies 
C)  25 percent of the liabilities in respect of participating policies 
D)  All of the above

Question 10

Reinsurance is defines as:

Accepted Answer

A)  to pay another party to assume a stream of contingent expenses, for a premium over the expected cost 
B)  to pay another party to assume a stream of contingent revenues, for an interest over the expected cost 
C)  to sell another party to assume a stream of contingent assets, for a premium over the actual cost 
D)  to sell another party to assume a stream of contingent expenses, for a discount over the expected cost

Question 11

All operations under common control are combined, intercompany balances and transactions are eliminated and the effects of minority interests are recorded through:

Accepted Answer

A)  Managed transactions 
B)  Controlled investment 
C)  Consolidation 
D)  Monitory control

Question 12

What represent the ownership interests in the net assets of the subsidiary held by persons outside the controlling entities' structure?

Accepted Answer

A)  External control 
B)  Minority interests 
C)  Permanent stockholder 
D)  None of the above

Question 13

Extrapolation of historical dollars, projection of separate frequency data, use of expected loss ratios are all projection methods for:

Accepted Answer

A)  Loss extrapolation projections 
B)  Loss reserve projections 
C)  Claim unit projections 
D)  Losses incurred projections

Question 14

The arrangements by which pools manage separate accounts for each pool member from which the losses of that member are paid is called:

Accepted Answer

A)  employee pools 
B)  claim-serving pools 
C)  singular entity pools 
D)  None of the above

Question 15

What features a reserve that accumulates at company declared credited interest rates, which are periodically reset?

Accepted Answer

A)  Credited life insurance 
B)  Periodic life insurance 
C)  Premium life insurance 
D)  Universal life insurance

Question 16

Inflation in Defense & Cost Containment (DCC) is evaluated separately and is estimated to occur at the same rate as the rate of inflation in the losses.

Accepted Answer

A) True 
 B)False

Question 17

Primary coverage involves policies written between an insurer and a customer directly.

Accepted Answer

A) True 
 B)False

Question 18

Mutual entities, reciprocal or inter-insurance exchanges, public entity risk pools are all principal kinds of:

Accepted Answer

A)  Property and expense insurance organizations 
B)  Feasibility and performance assurance organizations 
C)  Property and liability insurance organizations 
D)  Building and asset related organizations

Question 19

A stock life insurance company writing both participating and nonparticipating business must follow special accounting procedures under the laws of certain jurisdictions. The purpose of these special accounting procedures is to provide for:

Accepted Answer

A)  A separation of accounting, so that profits applicable to participating and nonparticipating business can be appropriately determined 
B)  This is a critical process, since profits from participating business are regulated as to their distribution among participating policyholders and the company's stockholders 
C)  Some jurisdictions require the filing of several of the statutory statement exhibits in three forms, one for the company as a whole 
D)  Any of these

Question 20

The profitability of an insurance entity on a statutory basis is generally gauged by:

Accepted Answer

A)  combined ratio and its operating ratio 
B)  single module ratio and its operating ratio 
C)  Net ratio 
D)  Gross ration and actual ratio

Exam 1: Accredited Financial Examiner

Which of the following may NOT involve a high degree of management judgment and subjectivity and may present risks of material misstatement due to fraud?

Generally, residential loans are open to prepayment at any time without penalty. To protect against a deficiency, mortgage loans should not exceed the market value of the mortgaged property and in fact are usually made for:

The auditor should obtain a sufficient understanding by performing risk assessment procedures to:

A change in _______ or its application is appropriate if the change results in a measurement that is equally or more representative of fair value in the circumstances.

What method assumes that an entity's historical experience relating to the timeliness of settlement will be predictive of future results?

What is made on an instrument-by-instrument basis, generally when an instrument is initially recognized in the financial statements?

Investments in equities by a life insurance company may not exceed the total of

Reinsurance is defines as:

All operations under common control are combined, intercompany balances and transactions are eliminated and the effects of minority interests are recorded through:

What represent the ownership interests in the net assets of the subsidiary held by persons outside the controlling entities' structure?

Extrapolation of historical dollars, projection of separate frequency data, use of expected loss ratios are all projection methods for:

The arrangements by which pools manage separate accounts for each pool member from which the losses of that member are paid is called:

What features a reserve that accumulates at company declared credited interest rates, which are periodically reset?

Inflation in Defense & Cost Containment (DCC) is evaluated separately and is estimated to occur at the same rate as the rate of inflation in the losses.

Primary coverage involves policies written between an insurer and a customer directly.

Mutual entities, reciprocal or inter-insurance exchanges, public entity risk pools are all principal kinds of:

A stock life insurance company writing both participating and nonparticipating business must follow special accounting procedures under the laws of certain jurisdictions. The purpose of these special accounting procedures is to provide for:

The profitability of an insurance entity on a statutory basis is generally gauged by: