Chapter 1

AAA Insurance Company has transferred a portion of its loss exposure to BBB Insurance Company. In this reinsurance transaction, what is AAA Insurance Company called?

Primary Insurer (In a reinsurance agreement, the insurance company that transfers its loss exposure to another insurer is called the primary insurer.)

Which of the following is an insurer established by a parent company for the purpose of insuring the parent company's loss exposures?

Captive Insurer (An insurer established and owned by a parent firm for the purpose of insuring the parent firm's loss exposures is known as a captive insurer)

What is a participating life insurance policy?

Contract that allows the policyowner to receive a share of surplus in the form of policy dividends. (A participating life insurance policy is defined as a contract that allows the policyowner to receive a share of surplus in the form of policy dividends.)

When a mutual insurer becomes a stock company, the process is called

Demutualization (The process whereby a mutual insurer becomes a stock company is called demutualization.)

Which of the following is NOT a characteristic of reinsurance?

Increase the unaccredited Premium reserve (All of these are reinsurance features except "Increase the unaccredited Premium reserve".)

Which of the following is a contract that involves one party which indemnifies another when a loss arises from an unknown event?

Insurance Policy (An insurance policy is a contract where one party promises to indemnify another against loss that arises from an unknown event.)

Which of the following statements regarding a life insurance policy dividend is TRUE?

It is the distribution of excess of funds accumulated by the insurer on participating policies. (Dividends paid to policyowners of participating contracts represent a refund of excess premiums charged. Remember, since the premiums were initially paid with after-tax dollars, there is no income tax consequence to the policyowner.)

Which of the following is NOT a benefit of insurance?

Losses due to fraud are eliminated ("Losses due to fraud are eliminated" is NOT a benefit of insurance.)

One important function of an insurance company is to identify and sell to potential customers. Which of these BEST describes this function?

Marketing (Marketing can be best defined as identifying and selling to potential customers.)

A participating company is also referred to as which type of insurer?

Mutual Insurer (A mutual insurer is also referred to as a participating company.)

An insurer owned by its policyholders is called a

Mutual insurer (A mutual insurer is the property of his insured.)

An insurer enters into a contract with a third party to insure itself against losses from insurance policies it issues. What is this agreement called?

Reinsurance (Reinsurance is an arrangement by which an insurance company transfers a portion of a risk it has assumed to another insurer.)

Which of the following is a type of insurance where an insurer transfers loss exposures from policies written for its insureds?

Reinsurance (Reinsurance is an arrangement by which an insurance company transfers a portion of a risk it has assumed to another insurer.)