All of the following statements about regulatory objectives of insurance rate making are true EXCEPT A) One purpose of rate adequacy is to maintain the solvency of insurers. B) Rates unfairly discriminate if loss exposures that are similar with respect to losses and expenses are charged substantially different rates. C) Insurers know in advance if […]
The process of transferring risk to the capital markets through the use of financial instruments such as bonds, futures contracts, and options is known as A) consolidation of risk. B) avoidance of risk. C) securitization of risk. D) compartmentalization of risk. ANSWER Answer: C
Which of the following statements about methods for estimating loss reserves for property and casualty insurers is (are) true? I. The judgment method involves the use of a statutory formula to estimate the loss reserve. II. The average value method is used when the number of claims is large and the claims are settled quickly. […]
Pac-Coast Insurance (PCI) concentrates its underwriting activities in California. The company is concerned that if a catastrophic earthquake occurs, it might threaten the solvency of the company. To address this risk, PCI issued some debt securities. If a catastrophic earthquake occurs, PCI does not have to repay the full amount borrowed or pay interest. The […]
Under one method of estimating a loss reserve, the reserve is based on life expectancy, duration of disability, and similar factors. This method of estimating loss reserves is called the A) judgment method. B) tabular value method. C) loss ratio method. D) average value method. ANSWER Answer: B
One method through which reinsurance is provided is through an organization of insurers that underwrites insurance on a joint basis. Through the organization, financial capacity is available for large commercial risks. This reinsurance arrangement is a(n) A) quota-share treaty. B) surplus-share treaty. C) excess-of-loss treaty. D) reinsurance pool. ANSWER Answer: D
Which of the following statements is true regarding the information systems functional area of an insurance company? I. Computers and information systems are able to perform some tasks that previously were performed directly by employees. II. Information systems can speed the processing of policies by insurers. A) I only B) II only C) both I […]
The price per unit of insurance is called the A) premium. B) loss adjustment expense. C) rate. D) loss reserve. ANSWER Answer: C
Which of the following statements is (are) true about life insurance company investments? I. The majority of life insurance company general account assets are invested in bonds. II. The majority of life insurance company separate account assets are invested in stocks. A) I only B) II only C) both I and II D) neither I […]
Catastrophe bonds are made available to institutional investors in the capital markets through an entity that is specially created for that purpose. This is entity is called a A) risk retention group. B) fraternal insurance company. C) captive insurance company. D) special purpose reinsurance vehicle. ANSWER Answer: D
