Test 2
delta insurance company has a surplus- share treaty with Eversafe Reinsurance. Delta has a retention limit of 200,000 and nine lines of insurance are ceded to ever safe. how much will ever sage pay if a 1,600,000 building insured with delta suffers 800,000 loss?
700,000
temporary evidence of insurance until a policy is actually issued is provided by a(n)
binder
one type of insurer is a community- oriented health insurer. In most states, this insurer is set-up as a non-profit organization that provides coverage for hospital services, physician's and surgeons' fees, and other medical services. This type of insurer is called a
blue cross/ blue shied plan
why are some mutual insurers referred to as "assessment mutuals"
they can access policy owners if premiums are insufficient to pay losses and expenses
which of the following statements about mutual insurers is true?
they may pay dividends to their policy owners
all of the following statements about fraternal insurers are true EXCEPT
they specialize in writing property and liability insurance
all of the following are reasons for a primary insurer to use reinsurance EXCPET
to increase the unearned premium reserve
all of the following are functions of the marketing department of an insurance company EXCEPT
to make final underwriting decision
The expected loss ratio for a class of business is 60 percent. What change would be indicated in the level of rates under the loss ratio method if the actual loss ratio turned out to be 68 percent?
B) 13.33 percent increase
MedProf Insurance markets medical malpractice insurance. The company's combined ratio in 2009 was 95.4. Its expense ratio was 25.4. What was the company's loss ratio?
B) 70.0
A manufacturing company just hired a new risk manager, and she has instituted several employee safety programs. She has persuaded the insurer writing the company's workers compensation insurance to base the premium on the company's actual loss experience during the current period rather than on the company's historical performance. This type of plain is called a(n):
A) retrospectively rated plan
Mutual Property Insurance Company has a surplus $2 million. According to a conservative rule of thumb, how much new net premiums can Mutual Property Insurance Company safely write?
A) $2 million
Which of the following statements about experience rating is (are) true? I. The insured's past loss experience is used to determine the premium for the next policy period. II. Its use is generally limited to small firms whose actual experience lacks credibility.
A) I only
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 great 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.
A) I only
Which of the following statements about state insurance guaranty funds is (are) true? I. They limit the amount that policy owners can collect if an insurer becomes insolvent. II. They are usually funded by general revenues of the states.
A) I only
Which of the following statements about the licensing of insurance companies is (are) true? I. A new capital stock insurer must meet minimum capital and surplus requirements, which vary by state and line of insurance. II. The licensing requirements for insurance companies are less stringent than those imposed on most other types of firms.
A) I only
Which of the following statements about the regulation of insurance company investments is (are) true? I. The purpose of regulating insurance company investments is to prevent insurers from making unsound investments which could threaten their solvency. II. Life insurers can invest an unlimited amount of their assets in common stocks.
A) I only
The principal methods of ensuring insurer solvency include all of the following EXCEPT
A) Security and Exchange Commission oversight of investments
Life insurance policy owners 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?
A) as an asset
The policyholders' surplus of an insurer is defined as the difference between its
A) assets and its liabilities
A property and casualty insurer's loss reserve includes estimates for all of the following EXCEPT
A) claims anticipated but not yet incurred
All of the following are methods helping to insure the solvency of insurers EXCEPT
A) commercial lines deregulation
Under what type of rate regulation are insurers required to obtain approval of rates before using them if the rate exchange exceeds a specified predetermined range?
A) flex-rating law
Fly-By-Night Insurance Company had much larger losses than forecast. The company did not charge adequate premiums nor did the company purchase reinsurance. If Fly-By-Night becomes insolvent, which of the following will help pay the unpaid claims of the insurer?
A) guaranty fund
The portion of an insurance premium allocated to expenses, profits, and a margin for contingencies is called the
A) loading
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 this business soon". What did Nathan overlook in his calculations?
A) loadings
All of the following would appear in the asset section of an insurance company's balance sheet EXCEPT:
A) loss reserves
Grace is a life insurance agent. She is attempting to sell a large life insurance policy, but the prospective purchaser is having second thoughts. To persuade the prospective purchaser, Grace said "I will earn a $1,000 commission if you buy this policy. I'll give you $500 of my commission if you buy the policy." In most states, what illegal sales practice will Grace be guilt of if she splits her commission with the purchaser?
A) rebating
The basis for current state regulation of insurance is
A) the McCarran-Ferguson Act
XYZ Mutual Insurance Company has total assets of $10 million. The policyholders' surplus is $2 million. What are XYZ Mutual's total liabilities?
B) $8.0 million
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?
B) 75.0 percent
Which of the following statements about methods for estimating loss reserves for property and casualty insurers is (are) true? I. The judgement 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.
B) II only
Which of the following statements concerning the proposed optional federal charter for life insurers is (are) true? I. Large insurers operating in many states would more likely prefer a state charter while smaller, regional, insurers would morel likely choose a federal charter. II. Proponents of the federal charter argue that it would speed the development and approval of new products.
B) II only
All of the following statements about the methods of regulating insurance are true EXCEPT
B) Insurers are totally exempt from regulation by federal agencies or laws
Which of the following statements about judgment rating is true?
B) It is used when the loss exposures are so diverse that a class rate cannot be calculated.
The right of the states to regulate the business of insurance was first established by
B) Paul v. Virginia
Metro City has six different zip codes. XYZ Insurance Company markets coverages in Metro City. Any applicant who lists one particular zip code is automatically quoted a premium that is twenty percent more than the average premium for applicants from the other five zip codes, even if that loss exposure is incidental. Which regulatory objective is not being met given XYZ's premium structure?
B) Rates must not unfairly discriminate
In which of the following did the Court decide that insurance was interstate commerce when conducted across state lines, and therefore was subject to federal regulation?
B) South-Eastern Underwriters Association case
All of the following are arguments in favor of using an applicant's credit record in personal lines underwriting EXCEPT
B) Use of credit data in underwriting or rating discriminates against certain groups
A systemic risk is a risk that
B) can be the cause of the collapse of an entire system
An insurance company incorporated in another state has been licensed to operate in your state. In your state, the insurer would be considered a(n)
B) foreign insurer
Advantages cited by proponents of federal regulation of insurance include all of the following EXCEPT
B) greater opportunity for innovation
A score derived from an individual's credit history and other factors that is used by many auto and homeowners insurers for underwriting and rating purposes is called a(n)
B) insurance score
One item that appears on an insurance company's financial statements is a liability that represents an estimate of the claims reported and adjusted but not yet paid, claims reported and filed but not yet adjusted, and claims incurred but not yet reported to the company. This liability is called the insurer's:
B) loss reserve
The regulation of insurers in areas that affect consumers, which include claims handling, underwriting, complaints, advertising, sales practices, and other trade practices is called
B) market conduct regulation
Under the pure premium method of determining class rates, the gross rate is determined by which of the following formulas?
B) pure premium/(1-expense ratio)
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:
B) tabular value method
Which of the following statements about retrospective rating is true?
B) the premium for the current period is determined by the loss experience during the current period
All of the following statements about business objectives in designing a rating system are true EXCEPT
B) the rating system should be independent of long-run changes in economic conditions
functions of insurance company's legal departments include which of the following? I. Lobbying for legislation favorable to the insurance industry II. drafting policy provisions
Both I and II
LMN Mutual Insurance Company has total liabilities of $300 million. The company has total assets of $380 million. What is LMN's policyholders' surplus?
C) $80 million
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 expense ratio last year?
C) 33.3 percent
All of the following statements about regulatory objectives of insurance rate making are true EXCEPT
C) Insurers know in advance if the coverages marketed will be profitable, so rate regulation is not needed.
All of the following statements about insurance regulation are true EXCEPT
C) The National Association of Insurance Commissioners (NAIC) can force states to adopt the model laws that it drafts.
All of the following statements about class rating are true EXCEPT
C) The complexity of class rating makes it inappropriate for personal lines coverages
An insurance company chartered in another country has been licensed to operate in your state. In your state, the insurer would be considered a(n)
C) alien insurer
Reasons for regulation of insurance include which of the following? I. Maintaining insurer solvency II. Ensuring reasonable rates
C) both I and II
Reasons for the unearned premium reserve include which of the following? I. To pay losses that occur during the policy period. II. To pay premium refunds to policyholders in the event of cancellation.
C) both I and II
The major reasons for insurer insolvency include which of the following? I. Inadequate pricing and loss reserves II. Rapid growth and inadequate surplus.
C) both I and II
Which of the following statements about the regulation of life insurance companies is (are) true? I. The percentage of assets a life insurance company may invest in a specific type of asset (e.g., stocks or bonds) is generally limited by law. II. The purpose of limiting the accumulation of surplus is to prevent an insurer from increasing its surplus at the expense of policyowner dividends.
C) both I and II
Which of the following statements about the use of risk-based capital requirements is (are) true? I. Insurers must have a certain amount of capital depending on the riskiness of their investments and insurance operations. II. Insurers may be required to take certain actions depending on how much capital they have relative to their risk-based capital requirements
C) both I and II
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.
C) both I and II
All of the following items would appear in the income section of an insurance company's income and expense statement EXCEPT
C) commissions
The number of title insurance companies operating in State Z is relatively low. Recently, the largest of these companies (50 percent market share) acquired the second largest company (30 percent market share). Immediately after the acquisition, the insurer raised premiums by 75 percent. This scenario demonstrates which of the following rationales for the regulation of insurance?
C) ensure reasonable rates
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
C) experience rating
The unit of measurement used in property and casualty insurance pricing is called the
C) exposure unit
Shortcomings of state regulation of insurance found by Congressional committees and the General Accounting Office include all of the following EXCEPT
C) inability to respond to unique local needs
In 2008, the US federal government stepped-in to prevent the financial failure of the world's largest insurers, the American International Group (AIG). AIG's near insolvency was caused by
C) losses on derivative loan guarantees issued by the company
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
C) net single premium
Monopoly Insurance is the only company marketing a certain line of insurance in a state. After complaints from several consumers, the State Insurance Department investigated Monopoly's rates. The regulators determined that Monopoly was taking advantage of being the only insurer offering the line by charging more than double the actuarial cost of the coverage. Which regulatory rating objective was Monopoly violating?
C) rates must not be excessive
Small Town used to be just that--- a small town 6 miles from Large City. Over the years, the area between Small Town and Large City has developed, and now Small Town is part of the suburbs surrounding Large City. An auto insurer that operated in the area had a large increase in auto claims from Small Town insurers. The insurer did not adjust its rates, and this year will lose money because of the class attributable to higher population density. Which business ratio objective did this insurer fail to meet?
C) responsiveness
To protect policyholders, state laws place limitations on a life insurance company's investments. The assets backing interest-sensitive products, such as variable life insurance and variable annuities, are not subject to these restrictions. Assets backing interest-sensitive products are placed in a special account called the life insurer's
C) separate account
The National Association of Insurance Commissioners (NAIC) administers an "early warning system" to help ensure insurance company solvency. This system uses data provided in the annual statement to identify companies that may pose a solvency risk. This early warning system is called
C) the Insurance Regulatory Information System (IRIS)
Under one type of rating law, insurers are free to change rates and to use modified rates immediately. However, the new rate must be filed with regulators within a specific period, such as 60 days after the modified rate is employed. This type of rating law is called
C) use-and-file
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?
D) $100.00
XYZ Insurance Company expects $500,000 in claims and loss adjustment expenses for each 1,000 properties that it insures in a certain category of business insurance. What pure premium should XYZ charge for each property insured?
D) $500.00
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?
D) 108.3
Which of the following is an argument for repealing the McCarran-Ferguson Act?
D) It would correct for defects in state regulation
All of the following statements about the combined ratio are true EXCEPT
D) a combined ratio less than 1 (or 100 percent) indicates that an underwriting loss has occurred.
A life insurance company based in Canada was licensed to operate in Massachusetts. When operating in Massachusetts, the Canadian insurer would be considered a(n)
D) alien insurer
A loss reserve established for each individual claim when it is reported to a property and casualty insurance company is called a(n):
D) case reserve
Advantages cited by proponents of state regulation of insurance include all of the following EXCEPT
D) centralization of political power
The near demise of American International Group (AIG) in 2008 was caused by AIG's issuance of a complex derivative. This derivative guaranteed mortgage-backed securities held by investors. As the real estate market collapsed, AIG was required to post billions of dollars of collateral that it did not have. What were the derivative loan guarantees issued by AIG called?
D) credit default swaps
In schedule rating, each building is individually evaluated based on several rating factors. One factor refers to the possibility that the building will be damaged or destroyed by a fire that starts at an adjacent property and spreads to the building. This rating factor is known as
D) exposure
Which of the following statements about premium taxes is (are) true? I. They are levied by the federal government as a result of the McCarran-Ferguson Act. II. Their primary purpose is to provide funds for insurance regulation.
D) neither I or II
Which of the following statements is (are) true regarding the quality of insurance regulation? I. The quality of insurance regulation is uniform from state to state. II. All evidence suggests federal regulation of insurance would improve the quality of regulation.
D) neither I or II
Which of the following statements is true regarding the financial crisis and the insurance industry? I. The insurance industry is to blame for causing the financial crisis by originating sub-prime mortgage loans. II. Many insurance companies become insolvent as a result of the financial crisis.
D) neither I or II
Under one type of rate regulation, insurers are not required to file their rates with the state insurance department. However, insurers may be required to furnish rate schedules and supporting data to state officials. A fundamental assumption underlying this type of rating law is that market forces will determine the price and availability of insurance, rather than discretionary acts of regulators. This type of rate regulation is called
D) no filing required
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 2 is a dry cleaning business. Unit 3 is a bar and grill. Unit 4 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?
D) occupancy
Which of the following is considered a non admitted asset for an insurer?
D) office furniture
All of the following are expenses of life insurance companies EXCEPT
D) realized capital gains
State X's premium tax rate is 2 percent. State Y's premium tax rate is 3 percent. State X insurers are required to pay the 3 percent rate on business written in State Y. State X requires insurers from State Y to pay a 3 percent premium tax on businesses written in State X, even though the premium tax rate is only 2 percent in State X. This practice is known as
D) retaliatory tax law
ABC Insurance Company would like to purchase a bank. For many years, ABC was not permitted under federal law to enter into banking operations. Which of the following legislative acts eliminated the prohibition that prevented banks, insurers, and investment firms from entering into one another's markets?
D) the Financial Modernization Act (Gramm-Leach-Bliley Act)
By misrepresenting the true facts, Gretchen was able to convince a client to drop a life insurance policy with another company and to purchase from the company that Gretchen represents. Gretchen has engaged in an illegal sales practice called
D) twisting
which of the following statements about the underwriting policy is (are) true? I. A company must establish an underwriting policy consistence with company objectives II. Underwriting policy is usually subjective and allows the underwriter considerable flexibility with respect to lines written and forms used
I only
Advantages of the direct response system for marketing life insurance included which of the following? I. Advertising can be specifically directed to selected markets II. Complex products can be easily sold
I only
which of the following statements about adjustment bureaus is (are) true? I. They are frequently used to settle claims when a large number of losses occur in a given geographic location as a result of catastrophic event II. Their major advantage is low cost because of the use of part-time adjustors
I only
which of the following statements about brokers is (are) true? I. They legally represent the insurers rather than the insurance company II. They are prohibited from being licensed as agents
I only
which of the following statements about the investments of property and liability insurers is (are) true? I. Income from investors is important in offsetting any unfavorable underwriting experience II. Because premium income is continually being received, the investment objective of liquidity is of little importance
I only
Which of the following statements is (are) true with respect to catastrophic bonds? I. the bonds are issued by the US Government II. The bonds have relatively high interest (coupon) rates
II only
which of the following statements about a reciprocal exchange is (are) true? I. It usually specializes in health insurance II. It is an unincorporated mutual insurance company
II only
which of the following statements about the managerial system of marketing life insurance is (are) true? I. It uses branch offices run by independent agents who represent several companies II. The branch manager is an employee of the insurer who has the responsibility for hiring and training new agents
II only
which of the following statements is (are) true about savings bank life insurance (SBLI)? I. each depositor at the savings bank receives life insurance equal to his or her savings account balance II. The goal of SBL low-cost life insurance to consumers
II only
which of the following statements is (are) true with respect to the financial services industry? I. The number of firms operating in the industry continues to increase at a high rate II. the financial modernization act of 1999 permits financial institutions to compete in other financial markets outside their core business area
II only
one source of life and health insurance underwriting information is an organization that life and health insurance companies can join. As a member, life and health insurance companies report health impairments of applicants, and this information is shared with member companies. Although the information is shared, the underwriting decision of the member company is not disclosed. What is this organization called?
Medical Information Bureau
all of the following statements about the general agency system used for selling life insurance are true except
a general agent is a salaried employee whose responsibilities are limited to selling life insurance
the unearned premium reserve of an insurer is
a liability representing the unearned portion of gross premiums on outstanding policies
all of the following statements about claims settlement are true EXCEPT
a public adjustor is usually paid a flat fee regardless of the size of the claim
sue double-majored in mathematics and statistics in college. She also enrolled in a number of finance courses. After graduation, she was hired by Econodeath Insurance Company. her job is to calculate premium rates for life insurance converges. Sue is a(n)
actuary
the underwriting process beings with the
agent
most insurance companies require their marketing representatives to submit an evaluation of the prospective insured. This important source of underwriting information is called the
agent's report
huge insurance company is a property insurer that is interested in protecting itself against cumulative losses that exceed 200 million during the year. This protection can best be obtained using
an excess- of-loss reinsurance treaty
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 preform some tasks that previously were performed directly by employees II. informant systems can speed the processing of polices by insurers
both I an II
Factors that may result in more restrictive underwriting decisions include which of the following? I. Inadequate rates II. the unavailability of reinsurance at favorable terms
both I and II
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 are invested in stocks
both I and II
which of the following statements about underwriting standards is (are) true? I. one purpose of underwriting standard is to reduce adverse selection against the insurer II. Equitable rates should be charged so that each group of policy owners pays its owns way in terms of losses and expenses
both I and II
Which of the following statements about schedule rating is (are) true? I. It involves the determination of a basis rate for each exposure, which is then modified by credits or debits. II. It is based on the assumption that certain physical characteristics of the insured's operations will influence the insured's future loss experience.
c) both I and II.
R.I.P Company manufactures herbicide and pesticide. The company had difficulty finding affordable liability insurance. RIP established its own insurance company based in Bermuda for the purpose of insuring IP loss exposures. The company that RIP formed is called
captive insurer
Pas- Coast Insurance 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 debt securities. IF a catastrophic earthquake occurs, PCI does not have to repay the borrowed funds of pay interest. The securities PCI issued are
catastrophic bonds
in 2008, liberty mutual insurance company acquired Safeco Insurance Company. This acquisition demonstrates which financial services industry tend?
consolidation
a personal lines insurance company initiating banking and investment services for its policy owners demonstrates which financial services industry trend?
convergence
which of the following statement about Lloyd's of London is true
coverage is actually written by syndicates who belong to Lloyd's of London
Big Mutual Insurance Company would like to take advantage of financial serves deregulation by acquiring a bank and stock brokerage firm. Big mutual, however, would have trouble rains in the funds needed to make these acquisitions under the mutual form of organization. Big Mutual is planning to switch from the mutual form of organization to the stock form, and to issue shares of common stock to raise capital. This change in organizational structure is called
demutualization
the function of an actuary is to
determine premium rates
RST insurance is an interesting company. It doesn't have agents. Instead, the company sells insurance through radio ads, telemarketers, and newspaper and magazine inserts. This distribution method is called
direct response system
salespersons of a direct writer are considered to be
employees
a reinsurance contract that is entered into on a case by case basis after an application for insurance is received by a primary insurer is called
facultative reinsurance
the financial services fields is currently experiencing consolidation and convergence. if both of these trends continue, in the future we should observe
fewer financial institutions offering a wider range of financial services products
the leasers of a religious group decided to start a life insurance organization to insure members of the religious group. The insurer will operate as a nonprofit organization, thus receiving favorable tax treatment. The insurer formed will be a
fraternal insurer
Brian is a life insurance agent. He is licensed to represent one company and has been assigned a territory. In addition to marketing life insurance products in the territory, Brian is also responsible for recruiting, training, and motivating new agents for the company in his territory. Brian is a(n)
general agent
Beverly lives in a sparsely populated area in the northern Idaho. Some insurance companies marketing coverage in northern Idaho cannot afford to have full-time adjustors there. Several insurers hire Beverly to adjust claims for their insureds. Beverly charges the insurers a fee for each claim that she settles. Beverly is a(n)
independent adjustor
Sarah owns a property and liability insurance agency. She is authorized to represent several insurance companies and she is compensated by commissions. Sarah's agency owns the expiration rights to the business she sells. Sarah is a(n)
independent agent
if an underwriter suspects moral hazard, the underwriter may ask an outside firm to investigate the applicant and make a detailed report to the insurer
inspection report
mark has been an underwriter for 20 years. An application he recently reviewed looked odd to him. The building value in the application seemed far too high, and Mark suspected the applicant might be planning to destroy the property after it is insured. Mark contacted an outside firm and hired someone to investigate the applicant and to prepare a report about the applicant. this report is called
inspection report
insurers obtain data which can be used to determine rates from
insurance advisory organizations
scott works in property and liability insurance marketing. He legally represents insurance purchasers, rather than insurance companies. Scott is paid a commission on the insurance placed with insurers. Scott is a(n)
insurance broker
Ross studied engineering in college. After graduation, he went to work for an insurance company. Ross visits properties insured by his company. He conducts inspections and makes recommendations about alarm systems, sprinkler systems, and building contraction. In what functional area does Ross work?
loss control
Cathy just started a job with XYZ manufacturing company. She attended an orientation and was given a packet providing information about the various employee benefits XYZ offers. One item in the packet was a booklet and application form from an auto insurer. The insurer offers lower premiums to XYZ employees. The insurer's pan for selling individually-underwritten auto insurance to employees to XYZ manufacturing Company is called
mass merchandising
ABC insurance has always used the exclusive agency system to market converges. ABC, however, cannot afford full-time agents in sparsely-popalted areas. To reach customers in these ares, ABC enters into agreements with local independent agents. Using more than one marketing system is called employing a
multiple distribution system
The demutualization process is expensive and time consuming. As an alternative to demutualization, many states have enacted legislation allowing a mutual company to reorganize as a company that directly or indirectly controls another insurer. The insurer is a stock company that can issue additional shares of stock to raise capital. The reorganized company is called a
mutual holding company
Which of the following statements about claim settlement is (are) true? I. The fair payment of claims requires an insurer to adopt a very liberal claims policy II. To prevent lawsuits, an insurer should provide no personal assistance to a claimant other than that which is required by contractual obligations
neither I nor II
which of the following statements about the sale of property and liability insurance through the direct response system is (are) true? I. Selling expenses are higher because market segmentation tends to be less precise than with other marketing methods II. It is the most appropriate system for selling complex products
neither I or II
which of the following statements about the exclusive agency system for marketing property and liability insurance is true?
new exclusive agents usually start as employees and after a training period become independent contractors
ABC life insurance company uses an interesting marketing system. The company locates life insurance agents who are already successful and signs the agents to sell ABC insurance products. ABC does not ask their agents to recruit new agents. The type of marketing system that ABC Life Insurance uses is called the
non building agency system
under one life insurance marketing systems an insurer sells its products through established agents who are already engaged in life insurance sales. Under this system, an insurer enters into contracts with successful agents who agree to sell they insurer's products. This life insurance marketing system is called the
non building agency systems
which of the following is characteristic of a typical mass merchandising plan?
payment of premiums through payroll deduction
David has always been successful in sales. Recently, he was approached by a life insurer interested in hiring him. Initially, David was not interested in the job because he feared it would require lot of administrative work. "You're a super salesperson, David," he was told, "We're hiring you to do one thing and one thing only- SELL!" David accepted the position. David is a(n)
personal- producing general agent
Easy Pay Insurance company may require insureds who suffer a loss to submit a sworn statement to substantiate that a loss occurred and the describe the condition under which the loss occurred. this sworn statement is called a
proof of loss
all of the following are methods that a property and liability insurance company can use to protect against catastrophic losses EXCEPT
purchase of common stock
Liability Insurance Company (LIC) was approached by a region airline to see if LIC would write the airline's liability coverage. LIC agreed to write the coverage and entered into an agreement with a reinsurer. Under the agreement, LIC retinas 25 percent of the premium and pays 25 percent of the losses, and the reinsurer receives 75% of the premium and pays 75% of the losses. The reinsurance arrangement is best described as
quota-share reinsurance
catastrophic bonds are made available to institution investors in the capital markets through an entity that is specially created for that purpose. This entity is called
special purpose reinsurance vehicle
one method through which reinsurance is provided is through an organization of insurers that underwrites insurance on joint basis. Through the organization, financial capacity is available for large commercial risks. This reinsurance arrangement is called
reinsurance pool
amy heads the legal staff of a large property and liability company. Amy's staff is likely involved in all of the following activities EXCEPT
reviewing applicants to determine if the company should insure the risk
the process of transferring risk to the capital markets through the use of financial instruments such as bond,s future contracts, and options is know as
securitization of risk
the corporate structure of mutual insurers is changing rapidly. All of the following are current trends Except
sharp increase in the number of mutual insurance companies
all of the following are reason why mutual insurance companies convert to stock insurance companies EXCEPT
stock companies are exempt from state insurance regulation
some investors decide to start an insurance company. Each investor contributed $50,000 to raise the capital required to charter a new company. Each investor received an ownership interest in the company. The company will raise additional capital by selling ownership rights to other investors. Under this type of organization, the customer and owner functions are separate. this type of insurer is called
stock company
which of the following statements about stock insurers is true?
stockholders bear any losses and share in any profits
Jim would like to start a business raising thoroughbred racehorses. The business would be the fist of its kind in the state where he lives. Obtaining insurance on the horses is a key concern, and he was dismayed to learn that non of the insurers authorized to operate in his state offered the specialty insurance. What is the name of the intermediary which Jack can use to place this coverage with an insurer not admitted by his state?
surplus line broker
neil needs insurance that is unavailable in the state where he lives. To obtain insurance from a nonadmittted insurer, Neil should contact a
surplus lines broker
All of the following statements about the settlement of a claim are true EXCEPT
the adjustor must file the proof of loss, which is a sworn statement supporting his or her decision regarding a claim
all of the following statements about reinsurance are true EXECPT
the amount of insurers transferred to a reinsurer is called the net retention
common sources of underwriting information for life and health insurance include all of the following EXCEPT
the applicants income tax return
All of the following statements about the independent agency system are true EXCEPT
the insurer rather than the agent owns the renewal rights to the business
all of the following statements about life insurance company investments are true EXCPET
the majority of these investments are short-term investments
which of the following statements about treaty reinsurance is true?
the reinsurance must accept all business that falls within the scope of the treaty
New Liability Insurance Company began operations last year and has been very successful. The company's ability to grow is being restrict by an accounting rule that requires insures to realize acquisitions expenses immediately, while not realizing premiums reed as income until some time has passed. Reinsurance is often used in such cases for which of the following purposes?
to reduce the unearned premiums reserve
jan is employed by an insurance company. she reviews applications to determine whether her company should insure the applicant. If insurable, Jan assigned the applicant to a rating category based on the applicant's degree of risk. Jane is
underwriter
which of the following statements about treaty insurance is true?
using reinsurance pool provides financial capacity to write large amounts of insurance
antonios is a claims adjustor for LMN Insurance company. After the insurer is notified that there has been a loss, Antonio meets with the insured. The first step in the claims process that Antonio should follow is
verify that a covered loss has occurred