Module 5
Credit unions invest heavily in securities , of which about _____ worth have maturities of less than one year .
$ 80 billion
Credit life insurance represents less than ___ percent of the total market .
1
In 2018 , life insurance companies managed about ___ percent of the total assets in all private pensions plans .
38
Although experiencing poor performance during the period , the savings industry survived the financial crisis with the loss of only ___ savings institutions .
5
The property - casualty insurance industry is highly concentrated , with the top ten firms having a ___ percent share of the overall market measured by premiums written .
50
Approximately ___ percent of all credit unions are federally chartered , representing ___ percent of total industry assets .
51.5 ; 49.9
In order to pass the QTL test mandated by FIRREA , savings institutions must hold a minimum of ___ percent of their assets in mortgage - related assets .
65
In 2018 the U.S. had approximately ___ life insurance companies in business compared to ___ companies in 1988 .
740 ; 2,300
Due to a combination of risky investments and the failure of the real estate market in parts of the U.S , approximately ___ savings institutions failed . during the 1984-1993 period .
919
In 2007 , the FDIC merged the Savings Association Insurance Fund ( SAIF ) and the Bank Insurance Fund ( BIF ) into the
Deposit Insurance Fund ( DIF ) .
True or false : Credit unions are the least numerous of the depository institutions .
False
As a result of the difficulties experienced by the insurance industry during the financial crisis , Congress has established the _______ to monitor the insurance industry , identify risks , deal with international matters and monitor the extent to which underserved communities have access to affordable insurance products .
Federal Insurance Office
As a result of the difficulties experienced by the insurance industry during the financial crisis , Congress has established the _______ to monitor the insurance industry , identify risks , deal with international matters and monitor the extent to which underserved communities have access to affordable insurance products .
Federal Insurance Office ,
Savings institution holding companies are subject to supervision by the
Federal Reserve Bank .
The 1989 act of Congress that abolished the FSLIC and replaced the Federal Home Loan Bank Board with the Office of Thrift Supervision was the
Financial Institutions Reform , Recovery and Enforcement Act
The federal agency responsible for identifying any financial institution , including insurance companies , that presents a systemic risk to the economy and subjecting them to greater regulation is the
Financial Stability Oversight Council .
The first credit unions were organized in the early 1900s in ______ as self - help organizations .
Massachusetts
The act of Congress that confirmed the primacy of state over federal regulation of insurance companies was the
McCarran - Ferguson Act .
State insurance commissions supervise and examine insurance companies using a coordinated examination system developed by the
National Association of Insurance Commissioners .
Deposit insurance for credit unions is provided by the _________ that covers up to 98 percent of state and federal credit union deposits for up to $ 250,000 ,
National Credit Union Share Insurance Fund .
The agency created by FIRREA in 1989 to close and liquidate most insolvent savings institutions was the
Resolution Trust Corporation .
In 2018 , the top property - casualty firm was _______ and the second ranked insurer was ______.
State Farm ; Berkshire Hathaway
During the financial crisis , the heavy losses suffered by several large , important life insurance companies caused the Treasury Department to extend bailout funds to them under the
Troubled Asset Relief Program .
True or false : Life insurance companies ' large investments in financial securities caused them to suffer heavy losses during the financial crisis .
True
True or false : Smaller credit unions generally underperform larger credit unions because of their smaller , less diversified customer base and higher . overhead per dollar of assets .
True
True or false : To help ensure borrowers do not get caught in a debt trap , the CFPB enacted regulation in 2017 that required payday lenders to verify income , rent , and even student loan payments of potential borrowers .
True
Finance companies do not _______ but rely on _______ to finance their loans .
accept deposits ; borrowed funds
Because of _______ an insurance company's pool of customers may be more prone to health problems than the overall population , forcing the insurance company to base its premiums on a pool that matches the customer's health characteristics rather than the general population .
adverse selection
The problem faced by life insurance companies by which customers who apply for insurance are those who are more likely to need it is called
adverse selection ,
Certain life insurance policies that entitle the beneficiary to the receipt of a lump sum at maturity could be converted into
an annuity .
The payday loan industry is regulated
at the state level .
The second largest category of loan ( by percent of total assets ) on the credit union balance sheet is loans for
autos .
As a result of the financial crisis of 2008-2009 , some of the largest finance companies found it necessary to convert to _________ in order to obtain access to liquidity required to survive .
bank holding companies
The demands placed upon the FSLIC by the large number of savings institution failures during the 1980s period caused the FSLIC to
become insolvent .
Property - casualty insurance companies invest most of their funds in _____ and _____.
bonds ; stocks
Due to the common bond requirement on credit union customers , credit unions make relatively few ______ loans .
business
The largest category of assets held by finance companies ( as a percent of total assets ) is
business and consumer loans .
A sales finance institution that is a wholly owned or captive subsidiary of the corporation whose products it finances is called a
captive finance company .
P & C insurers and reinsurers may issue _______ which pay high yields but may cause the investor to lose all or part of his / her _______ if a specified event occurs .
catastrophe bonds ; principal or interest
A common measure of the overall underwriting profitability of a line is the
combined ratio .
Adding the ratio of dividends paid to premiums earned to the combined ratio produces the
combined ratio after dividends .
The property - casualty insurance line that protects commercial firms against perils similar to homeowners multiple peril insurance is
commercial multiple peril .
Credit unions have historically focused on
consumer loans ..
Group life insurance in which both the employer and covered employee share the cost of the employee's coverage is called
contributory .
They types of assets on a life insurance company's balance sheet exposes it to _____ risk and _____ risk .
credit : interest rate
Life insurance which protects lenders against a borrower's death prior to the repayment of a debt contract is called
credit life .
Life insurance companies pool the risk of individual customers and thereby diversifies away some of the _______ making the cost of their services lower than what any individual could achieve by saving funds on his / her own .
customer - specific riski
Wholesale motor vehicle loans , an important line of business for finance companies , involves the financing of vehicle sales between the _____ and the _____.
dealer , manufacturer
Finance companies are forbidden to use _____ as a source of funding .
deposits
The type of ordinary life insurance that combines a term element with a savings element , paying out to beneficiaries if the insured dies within the endowment period , and paying out to the insured if they live to the endowment date , is
endowment life .
As a result of losses due to the financial crisis _____ of the corporate credit unions were declared insolvent .
five
In the mid - 2000s , the ________ increased funding costs and contributed to decreased margins for savings institutions .
flat - to - negative yield curve
The expected loss potential of a property - casualty insurance line can be estimated as the _______ times the _______.
frequency of loss ; severity of loss
The second most important source of funds on the liability side of the savings institution balance sheet is
funds borrowed from FHLB's ,
When the combined ratio is _______ 100 percent , overall profitability can be ensured only by a sufficient investment return on premiums earned .
greater than
In accident and health insurance , the major activity line is _____ insurance .
group
The _________ primarily invest and lend excess the funds of member credit unions .
group of 11 corporate credit unions
The _________ provides investment services to the individual credit unions , as well as automated settlement , securities safekeeping , data processing , and accounting and payment services .
group of 11 corporate credit unions
A type of pension plan offered by insurance companies in which the insurer guarantees not only the rate of interest credited to the plan over a some period , but also the annuity rates on beneficiaries contracts is a
guaranteed investment contract .
The period 1985-2016 was characterized by a number of catastrophes of historically
high severity .
Because the earnings of credit unions are tax - exempt , they can offer _______ on deposits and charge _______ on some types of loans compared to other depository institutions .
higher rates ; lower rates
Finance companies frequently charge _______ for their loans than other institutions because they lend to _____ customers .
higher rates ; riskier
Because finance companies borrow in capital markets and are not as highly regulated as depository institutions , they signal their safety and solvency to investors by
holding a higher level of equity capital than banks .
In addition to holding government securities , credit unions enhance their liquidity by
holding cash .
A profitable type of lending for finance companies in which customers borrow on a line of credit secured with a second mortgage on their homes are
home equity loans .
Savings institutions are still grouped separately because they provide important financial services to
households .
The primary function of finance companies is to make loans to both _____ and _____
individuals ; businesses .
Loss rates on all property insurance policies are adversely affected by unexpected increases in
inflation .
An insurance provider that sells insurance contracts for coverage or for a policy is an
insurance broker
Savings institutions hold ____ cash and investment securities as a percent of total assets than / as commercial banks .
less
Savings institutions hold ____ commercial loans as a percent of total assets than / as commercial banks .
less
Mutual organizations are generally _______ stock - chartered organizations because they are not required to seek out investments that satisfy shareholder desire for high returns .
less risky than
A loss ratio of _______ 100 percent means that premiums earned were sufficient to cover losses incurred on that line ..
less than
When the operating ratio is _______ 100 percent , a P & C insurer is profitable .
less than
The property - casualty insurance line that provides protection to individuals or firms against non - automobile related legal liability , is
liability insurance .
A liability insurance line is said to experience _______ loss when the insured event occurs within a coverage period but a claim is not filed until many years later .
long - tail
Life insurers have _____ liabilities and invest in _____ assets.
long - term ; long - term
Among the property - casualty insurance company's liabilities , the expected administrative and related costs associated with sending an adjuster to settle a claim is called the
loss adjustment expense .
The costs surrounding the P & C loss settlement process are called the
loss adjustment expenses .
The costs surrounding the P & C loss settlement process are called the
loss adjustment expenses ..
The ratio of actual losses incurred on a specify policy line to premiums earned is called the
loss ratio .
The largest liability component on the balance sheet of the property - casualty insurer is the
loss reserve .
Two areas in which specialized finance companies have been growing globally are ________ and ________.
low - income mortgage lending ; credit card lending
Loss rates are more predictable on _________ insurance lines than on _________ insurance lines .
low - severity , high - frequency ; high - severity , low - frequency
In the early 2000s finance companies thrived as ________ created a high demand for loans and mortgage refinancing .
low interest rates
Captive finance companies operate with _____ capital - to - assets ratios than / as smaller finance companies because of default protection guarantees from their parent company or other guarantees .
lower
The main source of credit union funding is
member deposits ..
The increasing degree of concentration in fewer , larger firms in the life insurance industry is the result of recent
mergers and acquisitions .
During the financial crisis of 2008-2009 , corporate credit unions started to experience large losses because of their investments in
mortgage - related and asset - backed securities .
A business in which finance companies earn a fee for collecting mortgage payments and passing them on to the investors who hold the mortgage backed securities is called
mortgage servicing .
Within the consumer loan category , the largest type of loan held by finance companies ( as a percent of total assets ) is
motor vehicle loans and leases .
A savings institution in which the depositors are the legal owners of the institution is called a
mutual organization .
Although commercial banks are the most important source of credit supply in many countries _________ have been increasing in relative importance over the past decade .
nonbank financial institutions
Group life insurance in which the employer bears the entire cost of the insurance is called
noncontributory .
Unlike the FDIC's Depositor Insurance Fund , the state - sponsored funds are _______ and receive contributions into the fund only when _______.
not permanent ; an insurance company has failed
Of the life insurance policies in force in the U.S. _______ is by far the most common , followed by _______
ordinary life : group life .
A subprime lender that provides short - term cash advances due when the borrower receives their next paycheck is a
payday lender .
Property - casualty insurance provides protection against _______ and _______ due to accidents , fire , theft and other catastrophes .
personal injury ; liability
The key feature of claims loss risk is the actuarial _______ relative to premiums earned .
predictability of losses
The key feature of claims loss risk is the actuarial _________ relative to premiums earned .
predictability of losses
Accident and health insurers face loss exposures that are similar to those faced by
property - casualty insurers .
The maximum levels of losses are more predictable for _____ insurance lines than for _____ insurance lines .
property : liability
An additional regulatory burden that P & C insurers face that life insurers do not is
rate regulation .
With a long - tail loss event , the delay in filing of a claim often occurs because there is a delay between the insured event and the
recognition of its detrimental consequences .
During the 2000s , many credit unions pursued ________ to expand their fields of membership , thus blurring the traditional common bond membership .
regional charters
The most common type of member deposit account at credit unions is the
regular share account .
An alternative to managing risk on a P & C insurer's balance sheet is to purchase
reinsurance .
The primary function of savings institutions is
residential mortgage lending .
Because finance companies are not as heavily regulated as depository institutions , they are often more willing to issue mortgages to _____ borrowers .
riskier
Finance companies that specialize in making loans to customers of a specific retailer or manufacturer are called
sales finance institutions .
Historically , the savings institution industry consisted only of savings associations , which were referred to as
savings and loan associations .
In the 1980s , federally chartered savings institutions known as _______ appeared in the U.S.
savings banks
The second largest liability on the life insurance company's balance sheet is
separate account business .
A life insurance company's _______ are funds invested and held separately from the insurance company's other assets . They may include premiums collected on variable life insurance policies and invested in financial securities at the direction of policyholders .
separate accounts
Because credit unions are mutually owned rather than shareholder owned , their focus is on _______ rather than shareholder value maximization .
serving the needs of members
Liability insurance lines are subject to _______ which may increase the insurer's cost of providing benefits faster than the increase due to the underlying rate of inflation .
social inflation
Life insurance policyholders ' invested funds are guaranteed by the
state - sponsored guarantee funds .
Like life insurance companies , property - casualty insurers are regulated by the
state commissions ..
Federally - chartered savings institutions are regulated by the OCC , and state - chartered savings institutions are regulated by the
state regulators .
One of the advantages for credit unions of being nonprofit organizations is that their earnings are
tax - exempt .
As credit unions grow and expand their membership , their competition with other depository institutions grows , leading competitors to challenge their
tax - exempt statuses .
Interest earned on annuities is _____ with taxes paid only when the annuity payments are made to the beneficiary .
tax deferred
The country in which the largest dollar value of total premiums were written in 2018 was _______ followed by _______.
the United States ; China
While savings institutions in the U.S. were created to accept deposits and issue mortgages , savings institutions in Europe were created to channel savers ' funds to
the commercial industry .
The main source of funds on the liability side of the savings institution balance sheet is
total deposits .
Of the top 10 insurance companies in the world by total revenue ___ are in the United States and ___ are in China .
two : three
P & C insurers consider that the period 1985-2016 was the trough of a ( n )
underwriting cycle .
The type of ordinary life insurance that allows the insured to invest adjustable premium payments in mutual funds of stocks , bonds and money market securities , is
variable universal life
According to the text , life insurance companies can increase their profits in which of the following two ways ?
•Reduce the risk of their insured pool to reduce future payouts •Increase the interest income earned on net policy reserves
Which of the three characteristics below combine to make credit unions unique among financial institutions ?
•They are nonprofit organizations •They are mutually organized and owned by their members •Their members are united by a " common bond "
Two features that together distinguish credit unions from other depository institutions are that they
•are nonprofit organizations •are owned by their depositors
The two major sources of expense risk to P & C insurers are ( pick two )
•commissions and other expenses •loss adjustment expenses
The fact that credit unions hold relatively large amounts of government securities and a relatively small amount of mortgage loans suggests that their exposure to _______ is fairly low .
•credit risk •interest rate risk
In addition to selling life insurance , life insurance companies also ( pick three )
•manage pension plans •sell annuity contracts •provide accident and health insurance
The sources of funding generally used by finance companies are ( choose all that apply )
•notes and bonds •commercial paper •bank loans
The four basic classes of life insurance are
•other activities •ordinary life •group life •credit life
The three main regulators of savings institutions today are the
•state regulators •Office of the Comptroller of the Currency ( OCC ) •Federal Deposit Insurance Corporation ( FDIC )
Finance companies often prefer to maintain ownership and lease equipment to a customer rather than sell it outright because ( pick three )
•the finance company gets the benefit of the depreciation expense on the equipment •if the customer cannot make payments then repossession is easier •leases require no down payment making them more attractive to the customer
All savings banks in Europe share two common features , which are
•they focus on savings and savings mobilization •they have a very regional or local focus
The loss reserves on the property - casualty insurer's balance sheet are established to address the insurer's underwriting risk , which may result from ( pick three )
•unexpected decreases in investment returns •unexpected increases in expenses •unexpected increases in loss rates
