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29 Cards in this Set
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18. Policy reserves are a(n) A. balance sheet liability. B. balance sheet asset. C. separate account item. D. insurance guarantee fund payment. E. income statement revenue item. |
A. balance sheet liability.
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19. The following type(s) of life insurance policies do not have a savings feature: A. Term life B. Whole life C. Variable life D. Universal life E. Both C and D do not |
A. Term life
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20. In property and casualty insurance the combined ratio is equal to the ______________________ divided by total premiums written. A. sum of the loss ratio plus loss adjustment expenses B. sum of the loss ratio plus general expenses and broker's commissions C. operating ratio minus dividends paid to policyholders D. nominal ratio plus real ratio E. 1 minus Operating ratio |
B. sum of the loss ratio plus general expenses and broker's commissions
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21. The term "variable" in a variable life policy refers to the 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. |
C. variable growth rate of the cash value of the policy
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22. The primary regulator of insurance firms is the A. NAIC B. McCarran-Ferguson Commission C. FDIC D. state insurance regulator E. SEC |
D. state insurance regulator
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23. Which one of the following statements concerning annuities offered by insurers is not true? A. Interest on annuities is not taxed until the investor receives the payments. B. Annuity payments may be fixed or variable. C. Annuity contributions are not capped by the IRS. D. Annuities can be deferred or immediate. E. Annuity payments must cease upon the policyholder's death. |
E. Annuity payments must cease upon the policyholder's death. |
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An investor has $25,000 that he can invest today. In addition to this amount, he can also invest $12,000 per year for 30 years (beginning one year from now) at which time he will retire. He plans on living for 25 years after he retires. If interest rates are 8%, what size annual annuity payment can he obtain for his retirement years? (All annuity payments are at year-end. Round your answer to the nearest dollar.) A. $64,439 B. $192,501 C. $150,913 D. $161,096 E. $173,488 |
B. $192,501
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25. A policyholder wishes to annuitize the cash value of her insurance policy at retirement. She desires an annual payment of $95,000 per year and the cash value is expected to be $1,100,000 at retirement. Approximately how many payments can she expect to receive if annuity interest rates are 5.122%? A. 18 B. 16 C. 14 D. 12 E. 10 |
A. 18
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26. The largest asset category of life insurers is _______________ and the largest liability category is ___________. A. bonds; separate account items B. separate account items; current policy claims C. bonds; policy reserves D. policy reserves; mortgage loans E. common stock; dividend reserve |
C. bonds; policy reserves
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27. The most important federal legislation affecting the regulation of life insurance companies prior to 1999 was the A. McCarran-Ferguson Act B. McFadden Act C. Investment Company Act D. SEC Act E. Insurance Freedom Act |
A. McCarran-Ferguson Act
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28. 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. 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 |
B. I and IV only
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29. In 2010 the average combined ratio after dividends for the P&C industry was ___________. A. 102.3 B. 105.6 C. 107.2 D. 97.6 E. 93.5 |
A. 102.3
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30. Hurricane damage in a given area is an example of a ____________________ for which it is difficult to predict loss exposure. A. low severity, low frequency event B. high severity, high frequency event C. low severity, high frequency event D. high severity, low frequency event |
D. high severity, low frequency event |
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31. Property and casualty insurers hold _____________ short-term assets than life insurers because property and casualty loss rates are _____________ predictable than life insurance loss rates. A. more; more B. more; less C. less; less D. less; more |
B. more; less
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32. The operating ratio is calculated as 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 the above |
C. the combined ratio after dividends minus the investment yield.
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33. An insurance line has a loss ratio of 72%, an expense ratio of 35%, and the firm pays 2% of premiums to policyholders as dividends. What level of investment yield is needed to make the P&C firm break-even? A. 5% B. 7% C. 9% D. 11% E. 18% |
C. 9%
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34. The two major components of expense risk for P&C insurers are 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 the above |
B. loss adjustment expenses and variations in commission and other expenses.
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35. At P&C insurers, if the combined ratio is less than 100%, the premiums charged were sufficient to cover A. losses only. B. expenses only. C. both losses and expenses. D. losses, expenses, and investment returns on premiums |
C. both losses and expenses.
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36. For P&C insurers, if the combined ratio is more than 100%, that firm A. could not have been profitable. B. must have been profitable. C. may have been profitable if investment returns were high enough. D. was profitable if the LAE was low enough. |
C. may have been profitable if investment returns were high enough.
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37. Estimates of the cost of the September 11, 2001 terrorist attacks on the World Trade Center indicate that the cost to insurance companies was as high as A. $20 billion B. $30 billion C. $40 billion D. $50 billion E. $60 billion |
C. $40 billion
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38. A policyholder wishes to annuitize the cash value of her insurance policy at retirement. The cash value is $725,000. What payment (to the nearest dollar) can he expect if he wishes to receive 15 years of payments (starting next year) and interest rates are 5.25%? A. $43,333 B. $55,555 C. $71,033 D. $60,524 E. $29,250 |
C. $71,033
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39. An insurance line has a loss ratio of 62%, an expense ratio of 35%, the firm pays 2% of premiums to policyholders as dividends, and has an investment yield to premium ratio of 9%. The operating ratio for this line is A. 86 B. 90 C. 95 D. 106 E. 109 |
B. 90
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40. An insurance line has a pure loss ratio of 65%, LAE of 16%, an expense ratio of 26%, the firm pays 3% of premiums to policyholders as dividends, and has an investment yield to premium ratio of 6%. Which one of the following statements is true? A. The line is profitable because the operating ratio is greater than 100. B. The line is profitable because the operating ratio is less than 100. C. The line is not profitable because the operating ratio is greater than 100. D. The line is profitable because the combined ratio after dividends is greater than 100. E. The line is profitable because the combined ratio after dividends is less than 100. |
C. The line is not profitable because the operating ratio is greater than 100.
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41. In terms of dollar costs, the worst U.S. catastrophe since 2000 was caused by A. the terrorist attacks on the World Trade Center and the Pentagon. B. Hurricane Katrina. C. the California fires of 2007. D. the Florida hurricanes of 2004. E. Hurricane Rita of 2005. |
B. Hurricane Katrina.
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42. Premiums received before the coverage period are termed A. unearned premiums B. lagged premiums C. loss adjustment expenses D. loss reserves E. policyholder's surplus |
A. unearned premiums
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43. Which one of the following would provide an example of social inflation? A. Large malpractice awards beyond the level of damages incurred. B. Increase in costs on auto physical damage claims. C. Increase in prescription drug cost claims. D. Losses to repair damages caused by hurricanes in Florida. E. Rising cost of funeral expenses due to inflation. |
A. Large malpractice awards beyond the level of damages incurred.
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44. 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. 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 |
C. I and III only
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45. The best underwriting performance since 1936 in terms of the combined ratio occurred during ____________ for property and casualty insurers. A. 1999 and 2000 B. 2001 and 2002 C. 2002 and 2003 D. 2004 and 2005 E. 2006 and 2007 |
E. 2006 and 2007 |
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46. State Farm and other P&C insurers came into conflict with policyholders over claims filed as a result of Hurricane Katrina that resulted in lawsuits. The conflict resulted from A. insurer's refusal to pay until reinsurance funds were collected. B. policyholder's fraudulent claims. C. insurers' insistence that the Katrina storm surge resulted in flood damage which was not covered. D. insurers overcharged for hurricane insurance. |
C. insurers' insistence that the Katrina storm surge resulted in flood damage which was not covered.
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