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Exam 7: Financial Operations of Insurers

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Question 21

Multiple Choice

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Which of the following would not appear in the asset section of an insurance company's balance sheet?

A) loss reserves
B) bonds
C) common stock
D) real estate

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Question 22

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Which of the following is an expense for a life insurance company?

A) loss reserves
B) death benefits paid to a beneficiary
C) unrealized capital gains
D) realized capital gains

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Question 23

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In schedule rating, each building is individually rated on several factors. One factor refers to the quality of the city's water supply and fire department, and the risk control devices installed in the building. This factor is called

Nathan was hired as an actuary with ABC Insurance. Nathan was asked to calculate the annual premium for a new product and to explain his calculations to ABC's director of ratemaking. Nathan calculated the pure premium and presented this value as the final premium. After Nathan's presentation, the director of ratemaking said, "You left out something very important. If we sell coverage at the pure premium rate, we'll be out of business soon." What did Nathan overlook in his calculations?

An Econodeath Insurance Company actuary calculated the present value of the expected death claim the company will pay if it sells whole life insurance to a 30-year-old woman. This value is called the

All of the following statements about regulatory objectives of insurance rate making are true EXCEPT

A strip-mall includes eight identical-sized retail units. All of the units were built at the same time and each has an identical sprinkler system. Unit number two is a dry cleaning business. Unit number three is a bar and grill. Unit number four is a dress shop. The owners of these three units are all insured by the same insurance company, but the property insurance premiums vary significantly. Which of the following rating factors best explains the difference in premiums?

A property and liability insurance company's loss reserve and unearned premium reserve are

XYZ Insurance Company uses class rating to determine the rate to charge for insurance. For one type of insurance, the pure premium XYZ actuaries calculated is $75 per unit. If XYZ's expense ratio is 25 percent, what is the gross rate for this coverage?

Which of the following statements about the combined ratio is true?

One liability on a property and liability insurance company's balance sheet is for the costs associated with settling and paying reserved claims. This liability is the

Which of the following statements about retrospective rating is true?

Life insurance policyholders may borrow the cash value from their life insurance policies. Where are life insurance policy loans shown on a life insurance company's financial statements?

Which of the following statements concerning regulatory objectives of rate making is (are) true? I. Rates must not be unfairly discriminatory. II. Rates must be adequate.

One life insurance company reserve is designed to smooth the company's reported surplus over time by absorbing fluctuations in security prices that are not attributable to changing interest rates. This reserve is called the

Which of the following statements about property and casualty insurance company operating results is (are) true? I.An insurance company can have a combined ratio greater than 1 (or 100 percent) and still be required to pay income taxes. II. By all measures, the property and casualty insurance industry is highly profitable when compared to other industries.

Which of the following statements is (are) true concerning investments of property and casualty insurers and life insurers? I.Property and casualty insurance companies place greater emphasis on liquidity than do life insurers. II.Life insurance company investments are, on average, of longer duration than property and casualty insurance company investments.

Under one type of merit rating, the class or manual rate is adjusted upward or downward based on past loss history. This type of merit rating is called

JKL Insurance Company reported the following information on its accounting statements last year: Premiums Written $90,000,000 Loss Adjustment Expenses $5,000,000 Underwriting Expenses $30,000,000 Premiums Earned $100,000,000 Incurred Losses $70,000,000 What was JKL's loss ratio last year?

JKL Insurance Company reported the following information on its accounting statements last year: Premiums Written $90,000,000 Loss Adjustment Expenses $5,000,000 Underwriting Expenses $30,000,000 Premiums Earned $100,000,000 Incurred Losses $70,000,000 What was JKL's combined ratio last year?