RMIN 5,6,7,10

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%, what is the gross rate for this coverage

$100

Ratemakers at ABC Insurance Company calculated the pure premium to be $280 for a risk they were considering insuring. What is the gross rate for this risk, assuming a 30 percent expense ratio?

$400

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

$500.00

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 Eversafe. How much will Eversafe pay if a $1,600,000 building insured with Delta suffers an $800,000 loss?

$700,000

LMN Mutual Insurance Company has total liabilities of $300 million. The company has total assets of $380 million. What is LMN's policyholders' surplus?

$80 million

which of the following statements is (are) true about the loss ratio method of the class rating? I. the pure premium is calculated, and it is loaded to cover expenses, profit, contingencies II. the actual loss ratio is compared to the expected loss ratio, and the rate is adjusted accordingly

II only

Purposes of the coinsurance clause in health insurance contracts include which of the following? I. To reduce premiums. II. To exclude coverage for certain medical procedures.

I only

advantages of the direct response system for marketing life insurance include 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 "open-perils" coverage is true I. all losses are covered except those losses specifically excluded II. the burden of proof is on the insured to prove that a loss is covered

I only

which of the following statements about underwriting policy is (are) true I. a company must establish an underwriting policy consistent 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

Why are some mutual insurers referred to as "assessment mutuals"?

They can assess policyholders 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 policyholders

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 SBLI is to provide low-cost life insurance to consumers

II only

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?

33.3%

ABC Company insured its building on a replacement cost basis for $700,000 under a property insurance policy that included an 80 percent coinsurance clause. The building had a replacement cost of $1 million when it sustained a $40,000 loss. How much will ABC Company receive from its insurer, assuming no deductible applies?

35,000

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?

75%

Ann Parks and Robert Evans jointly own a grocery store. Ann and Robert are both named insureds on the property insurance covering the store, but Ann is the first named insured. Which of the following statements is true with regard to Ann's status as the first named insured?

Ann is responsible for making sure that the premium has been paid

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 cancellatin

I and II

Kevin has three liability policies which provide for contribution by equal shares if other insurance applies to a loss. How much will each policy pay for a $3,000,000 liability judgment if policy A provides $500,000 of coverage, policy B provides $1,000,000 of coverage, and policy C provides $3,000,000 of coverage?

Policy A will pay $500,000, policy B will pay $1,000,000, and policy C will pay $1,500,000.

Which of the following statements about stock insurers is true?

Stockholders bear any losses and share in any profits

what information is contained in the insuring agreement of an insurance policy

a summary of the major promises of the insurer

a reciprocal exchange is managed by a corporation that is authorized to collect premiums, pay losses, invest funds, seek new members, and perform other functions. This corporate manager is called a(n)

attorney-in-fact

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 about personal producing general agents is (are) true I. they often have the option of recruiting and training sub-agents II. they are independent agents who produce substantial amounts of life insurance with one insurer

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 operation will influence the insured's future loss experience

both I and II

which of the following statements about underwriting standards is (are) true I. one purpose of underwriting standards is to reduce adverse selection against the insurer II. equitable rates should be charged so that each group of policy owners pays its own way in terms of losses and expenses

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

both I and II

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

both I and II

At what point in time must an insured meet the coinsurance requirement in a property insurance policy in order to avoid having to pay a portion of the loss?

only at the time of loss

RIP 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 RIP's loss exposures. The company that RIP formed is called a

captive insurer

which of the following is an expense for a life insurance company

death benefits paid to beneficiary

the part of a property and liability insurance contract that contains information about the property or activity to be insured is called the

declarations

Big Mutual Insurance Company would like to take advantage of financial services deregulation by acquiring a bank and a stock brokerage firm. Big Mutual, however, would have trouble raising 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 primary function of an actuary is to

determine premium rates

RST Insurance Company does not have any agents. Instead, the company sells insurance through radio ads, telemarketers, and newspaper and magazine inserts. This distribution method is called

direct response system

one of the reasons that deductible are used in insurance policies is to

eliminate coverage for small chains

Shauna hurt her back and was unable to work. She filed a claim under her disability income insurance policy. Under terms of the policy, 60 days must pass between the date of the injury and when the insurer begins to replace lost earnings. This 60-day period is called a(n)

elimination (waiting) period

A provision in a disability income insurance policy that requires a person to be disabled for 60 days before receiving benefits is an example of a(n)

elimination period

an insurance policy provision that specifies how a property loss will be settled if more than one property insurance policy covers the loss is the

other insurance provisions

Mark reviewed his homeowners policy. He learned that his personal property was insured on an actual cash value basis. He would like replacement cost coverage on his personal property. He contacted his agent who said, "I'll simply add an amendment to your contract that changes the basis of recovery to replacement cost." The written provision the agent was referring to is called a(n)

endorsement

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

excess-of-loss reinsurance treaty

The exclusion of flood in a homeowners policy is an example of an

excluded peril

a reinsurance contract that is entered into a case-by-case basis after an application for insurance is received by a primary insurer is called

facultative reinsurance

the leaders 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

Beverly lives in a sparsely populated area in 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

which of the following statements about claims settlement is true

independent adjustors may be used in a geographic area where the volume of business is too low for an insurer to have its own adjustors

) 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

which of the following statements is true regarding independent insurance agents in property and liability insurance

independent agents are paid the same commission rate on new and renewal business

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 a(n)

inspection report

Insurers obtain data that 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

a property and liability insurance company's loss reserve and unearned premium reserve are

liabilities

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 business soon." What did Nathan overlook in his calculations?

loading for expenses

which of the following would not appear in the asset section of an insurance company's balance sheet

loss reserves

a plan for selling individually unwritten property and liability insurance to members of a group is called

mass merchandising

property insurance policies contain declarations, conditions, definitions, exclusions, and an insuring agreement. however, some policy terms, such as subrogation, cancellation, other insurance, and assignment do not fall into these categories. The part of an insurance contract in which these provisions can be found is the

miscellaneous provisions

which of the following statements about a calendar-year deductible is true I. it requires the insured to pay a specified amount of each claim regardless of when the claim occurs during the year and regardless of any previous claims during the year II. it is used only in policies which cover direct property losses

neither I nor II

which of the following statements about claim settlement is true I. to 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 exclusive agency system for marketing property and liability insurance is true

new exclusive agents may start as employees and after a training period become independent contractors

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 two is a dry cleaning business. Unit number three is a bar and grill. unit number four is a dress shop. the owner's 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

occupancy

Peggy is an independent insurance agent who places substantial amounts of business with XYZ Insurance Company. XYZ pays Peggy a bonus when she meets a sales goal. XYZ also allows Peggy to recruit and train sub-agents. She receives additional commissions based on the sales generated by the sub-agents. Based on this description, we can conclude that Peggy is a

personal producing general agent

David is a successful independent insurance agent. Recently, one of the life insurance companies with whom he places business offered him a special financial arrangement. If David meets sales targets, he will receive large bonuses. He will also be able to recruit and train subagents and receive an over-riding commission based on the amount of life insurance the subagents sell. Based on this description, David is a(n)

personal-producing general agent

Lisa has three fire insurance policies on her office building. The policy from company A is for $400,000, and the policies from companies B and C are for $100,000 each. If Lisa has a $360,000 loss, how much of the loss will be covered by each policy if the loss is settled on a pro rata basis by the insurers?

policy A: 240,000 ; policy B and C: 60,000 each

Which of the following items would appear in the income section of an insurance company's income and expense statement

premiums

The purpose of other-insurance provisions is to

preserve the principle of indemnity

in schedule rating, each building is individually rated on several factors. One factor refers to the quality of the city's water supply and fire department, and the risk control devices installed in the building. this factor is called

protection

price per unit of insurance is called the

rate

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 coverage period rather than on the company's historical performance. This type of plan is called a(n)

retrospectively rated plan

Maggie purchased a life insurance policy. she was concerned that if she became disabled. she would no longer be able to pay the premium. her agent added an amendment of the policy stating that if she became disabled, future premium payments would be waived. such an amendment to a life insurance policy is called a(n)

rider

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

separate account

The corporate structure of mutual insurers has changed in recent years. All of the following are examples of significant changes EXCEPT

sharp increase in the number of mutual insurance companies

which of the following statements about life insurance marketing systems is true

some exclusive agents who market property and liability insurance also sell life insurance

a highly specialized technician who provides local agents in the field with technical help assistance with marketing problems is called a(n)

special agent

ABC insurance company entered into a reinsurance agreement with XYZ reinsurance. Under the contract, XYZ Re has no liability unless ABC's loss ratio exceeds 85% for the year. XYZ Re agreed to pay all losses in excess of the 85% loss ratio. ABC insurance company is using reinsurance to

stabilize profits

Some investors decided 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 a

stock company

The deductible used for automobile collision losses is an example of a

straight deductible

Under the terms of Jenny's auto insurance policy, she must pay the first $500 of any physical damage loss to her vehicle before her insurer will pay anything. What type of deductible is included in Jenny's auto insurance policy?

straight deductible

Jim would like to start a business raising thoroughbred racehorses. The business would be the first 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 none of the insurers authorized to operate in his state offer this specialty insurance. What is the name of the intermediary which Jack can use to place this coverage with an insurer not admitted to his state?

surplus lines broker

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

tabular value method

all of the following statements about class rating are true EXCEPT

the complexity of class rating makes it inappropriate for personal lines coverage

which of the following statements is true with regard to career life insurance agents

the insurer provides financing, training, supervision, and office facilities for career agents

a property and liability insurance company's loss ratio and expense ratio, respectively, for 2013: 74% 31% 2014: 68% 33% 2015: 66% 30% which fo the following statements is true about the company's underwriting results for this time period

the insurer's profitability from the underwriting has been improving each year

all of the following statements about business objectives in designing a rating system are true EXCEPT

the rating system should be independent of long-run changes in economic conditions

which of the following statements about treaty reinsurance is true

the reinsurer must accept all business that falls within the scope of the treaty, using a reinsurance pool provides financial capacity to write large amounts of insurance

When a fraternal insurer began operations, it asked each member, regardless of age, to pay $20 per month to the fraternal's group life insurance plan. In exchange, each member received the same amount of life insurance. Soon younger members of the group began to drop out when they realized their premiums were subsidizing a group with a higher chance of loss. Which important underwriting principle was violated in this case?

there should be equity among policyholders

which of the following statements is true about fraternal insurers

they specialize in writing life and health insurance

which of the following is a function of the marketing department of an insurance company

to identify production goals

New Liability Insurance Company began operations last year and has been very successful. The company's ability to grow is being restricted by an accounting rule that requires insurers to realize acquisition expenses immediately, while not realizing premiums received as income until some time has passed. Reinsurance is often used in such cases for which of the following purposes?

to reduce the unearned premium reserve

Exclusions are used in insurance policies for all of the following reasons EXCEPT

to waive policy conditions

) Antonio 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 to

verify that a covered loss has occurred