Assignment 15 - The Underwriting Cycle

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Which one of the following is an insurer response to a soft market?

New products

Return on equity influences the underwriting cycle because

When the majority of insurers raise rates to generate higher returns, the cycle turns

The fact that price changes have little or no influence on decisions to purchase insurance required by statute indicates that

Demand for mandatory insurance is more inelastic than for many other products

Which one of the following statements is true?

An increase in supply will soften the market

Which one of the following statements regarding characteristics of the underwriting cycle is true?

An increased supply has a softening effect on the market

Profit cycles in insurance and in agriculture

Are supply driven

The insurance industry has been experiencing increased competition, widely available coverage, low premiums and decreased profitability. One strategy for an insurance company to maintain market share regardless of the effect on underwriting profitability is to

Decrease prices

Which one of the following statements about the underwriting cycle is true?

During a soft market, insurance pricing reflects the desire to hold market share

Which one of the following statements about a hard market is true?

Insurance premiums rise during a hard market

The underwriting cycle is made up of two phases. Which one of the following best describes the soft market phase?

Intense competition in the market and decreased profitability

What has been the primary influence of investment income on the underwriting cycle in the period from 1978 to 2004?

Offset underwriting losses

In a soft market, insurers that loosen underwriting standards to increase insurance sales could be highly susceptible to harm from

Reductions in investment income

Which one of the following is most likely to cause insurance demand to be inelastic?

Required coverage

Underreserving losses ultimately has this effect on insurance supply

Supply ultimately decreases

When an insurer continues to write new insurance without addition to capital in order to compete in a soft market,

The premium-to-surplus ratio is eroded

Return on equity influences the underwriting cycle because

When rates are raised to generate higher returns, the cycle turns


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