Exam 7: Financial Operations of Insurers

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?

The portion of an insurance premium allocated to expenses,profit,and a margin for contingencies is called the

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

Which of the following statements about judgment rating is true?

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?

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?

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

A property and casualty insurer's loss reserve includes estimates for all of the following EXCEPT

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?

Which of the following statements about methods for estimating loss reserves for property and casualty insurers is (are)true? I.The judgment 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.

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 plan is called a(n)

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.

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 greater 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.

All of the following statements about class rating are true EXCEPT

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

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?

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

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

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.

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 insureds.The insurer did not adjust its rates,and this year will lose money because of claims attributable to higher population density.Which business rating objective did this insurer fail to meet?