Question 1

Explain the concept of a multiline company.

Accepted Answer

The term "multiline insurance" can refer to multiline contracts and multiline insurers, so let's take a look at both variations. A multiline contract is a type of insurance policy that bundles together exposures to risk and covers them under a single contract with a common aggregate deductible and policy limit. A common multiline contract combines property and casualty risks together into a single policy. A multiline contract is attractive because a common aggregate deductible can be offered on a policy portfolio that covers several risk types. Some insurance companies prefer this policy type because it allows them to reduce risk by spreading it among several factors, which helps them avoid a huge financial burden in the event of a catastrophe. On the other end of the spectrum, a multiline insurer is an insurance company or independent agent that provides a one-stop shop for businesses or individuals seeking coverage for all of their insurance needs. For example, many large insurers offer individual policies for automobile, homeowner, long-term care, life and health insurance needs. Holding multiple policies with the same insurer may trigger premium discounts for the insured and allow him or her to consolidate insurance policies with the same carrier. On the other hand, an insurance company that writes multiple insurance contracts on a customer garners more premium profits and improves client retention by keeping competitors away.

Question 2

Insurance products can be sold to individuals or groups. Describe the groups for which insurance products are typically sold to and the products sold to these groups.

Accepted Answer

Insurance products sold to groups are typically sold to the employees of specific companies through their employers, or educational, medical, or other professional associations. Among the major types of products distributed to groups are term life insurance, whole life insurance, medical insurance, disability insurance (short-term and long-term), and investment products such as mutual funds, annuities, and 401(k) products.

Question 3

There are many differences among the various types of insurance policies. Which of the below is NOT one of these differences?

Accepted Answer

A)  One difference is that many types of insurance will not have a payoff. 
B)  One difference is the statistical or actuarial accuracy of estimates of when the event insured against will occur and the amount of the payment. 
C)  One difference is the tax differences among different types of insurance policies and companies. 
D)  One difference is the expected time at which the average payment will be made by the insurance company (technically, the "duration" of the payments). 
A)  One difference is that many types of insurance will not have a payoff. 
B)  One difference is the statistical or actuarial accuracy of estimates of when the event insured against will occur and the amount of the payment. 
C)  One difference is the tax differences among different types of insurance policies and companies. 
D)  One difference is the expected time at which the average payment will be made by the insurance company (technically, the "duration" of the payments). A

Question 4

Traditionally, insurance companies have been stock, but they are increasingly remutualizing due to the perceived benefits of having a publicly traded stock.

Accepted Answer

A) True 
 B)False

Question 5

Insurance companies often have different distribution systems for individual and group products because individual product distributors deal with individuals and small company owners; and group product distributors deal with human resource departments of corporations and other organizations.

Accepted Answer

A) True 
 B)False

Question 6

A ________ is similar in structure to any corporation or public company.

Accepted Answer

A)  stock insurance company 
B)  mutual insurance company 
C)  partnership insurance company 
D)  All of these 
A)  stock insurance company 
B)  mutual insurance company 
C)  partnership insurance company 
D)  All of these

Question 7

In regards to the Gramm-Leach-Bliley Act (GLB), which of the below statements is FALSE?

Accepted Answer

A)  The GLB removed the 50-year-old "anti-affiliation restrictions" among commercial banks, investment banks, and insurance companies. 
B)  The GLB is asserted to be a reason for the accelerated demutualization of insurance companies. 
C)  The GLB prevented a single organization from having complete control over the sources of corporate funding. 
D)  The GLB has facilitated and accelerated affiliations among these three types of institutions. 
A)  The GLB removed the 50-year-old "anti-affiliation restrictions" among commercial banks, investment banks, and insurance companies. 
B)  The GLB is asserted to be a reason for the accelerated demutualization of insurance companies. 
C)  The GLB prevented a single organization from having complete control over the sources of corporate funding. 
D)  The GLB has facilitated and accelerated affiliations among these three types of institutions.

Question 8

Which of the below is TRUE of whole life insurance?

Accepted Answer

A)  The actuarial cost of pure insurance increases with age, but the premium charged on whole life insurance decreases. 
B)  Whole life insurance builds up a cash value that can be withdrawn and can also be borrowed against by the owner of the policy. 
C)  A major disadvantage of whole life insurance is that the inside buildup is subject to taxation. 
D)  The death benefit of the whole life insurance policy is always subject to estate tax. 
A)  The actuarial cost of pure insurance increases with age, but the premium charged on whole life insurance decreases. 
B)  Whole life insurance builds up a cash value that can be withdrawn and can also be borrowed against by the owner of the policy. 
C)  A major disadvantage of whole life insurance is that the inside buildup is subject to taxation. 
D)  The death benefit of the whole life insurance policy is always subject to estate tax.

Question 9

The complication in determining the value of liabilities arises because the insurance company has committed to make payments at some time in the future, and those payments are recorded as contingent liabilities on its financial statement.

Accepted Answer

A) True 
 B)False

Question 10

The first major investment-oriented product developed by life insurance companies was the guaranteed investment contract (GIC).

Accepted Answer

A) True 
 B)False

Question 11

Insurance companies are really a composite of three companies. Which of the below is NOT one of these three components?

Accepted Answer

A)  There is the component referred to as "home office" or actual insurance company that designs the insurance contract and provides the backing for the financial guarantees on the contract. 
B)  There is the investment component that invests the premiums collected in the investment portfolio. 
C)  There is the distribution component or the sales force. 
D)  There is the bank assurance component that assures that banks are paid off. 
A)  There is the component referred to as "home office" or actual insurance company that designs the insurance contract and provides the backing for the financial guarantees on the contract. 
B)  There is the investment component that invests the premiums collected in the investment portfolio. 
C)  There is the distribution component or the sales force. 
D)  There is the bank assurance component that assures that banks are paid off.

Question 12

Mutual insurance companies can adopt a longer time frame in their investments, which will most likely make possible a higher long-term return.

Accepted Answer

A)  Stock insurance companies can adopt a longer time frame in their investments, which will most likely make possible a higher long-term return. 
B)  Mutual insurance companies can adopt a shorter time frame in their investments, which will most likely make possible a higher long-term return. 
C)  Mutual insurance companies can adopt a longer time frame in their investments, which will most likely make possible a lower long-term return. 
D)  None of these 
A)  Stock insurance companies can adopt a longer time frame in their investments, which will most likely make possible a higher long-term return. 
B)  Mutual insurance companies can adopt a shorter time frame in their investments, which will most likely make possible a higher long-term return. 
C)  Mutual insurance companies can adopt a longer time frame in their investments, which will most likely make possible a lower long-term return. 
D)  None of these

Question 13

Name and briefly describe four major types of insurance.

Accepted Answer

Life Insurance:For life insurance, the r

Question 14

In 1933, Congress passed the Glass-Steagall Act. Trace the history of this act through the 20th century.

Accepted Answer

The Glass-Steagall Act separated commerc

Question 15

Insurance companies are monitored by ________.

Accepted Answer

A)  their accountants and auditors 
B)  their rating agencies 
C)  their government regulators 
D)  All of these 
A)  their accountants and auditors 
B)  their rating agencies 
C)  their government regulators 
D)  All of these

Question 16

There are two very important differences between calculating profitability of bread manufacturers and insurance companies. Which of the below is ONE of these?

Accepted Answer

A)  One difference is that the timing and magnitude of the payments are much more certain for an insurance company. 
B)  One difference is that there is a short lag between the receipts and payments for an insurance company. 
C)  One difference is that the timing and magnitude of the payments are much less certain for a bread company. 
D)  One difference is that there is a long lag between the receipts and payments for an insurance company, which introduces the importance of the investment portfolio. 
A)  One difference is that the timing and magnitude of the payments are much more certain for an insurance company. 
B)  One difference is that there is a short lag between the receipts and payments for an insurance company. 
C)  One difference is that the timing and magnitude of the payments are much less certain for a bread company. 
D)  One difference is that there is a long lag between the receipts and payments for an insurance company, which introduces the importance of the investment portfolio.

Question 17

The credit rating of an insurance company is important to a purchaser of insurance, especially for the types of insurance that may be paid well into the future, such as health insurance.

Accepted Answer

A) True 
 B)False

Question 18

________ policies allow the policy owners to allocate their premium payments to and among separate investment accounts maintained by the insurance company, within limits, and also to be able to shift the policy cash value among the separate accounts.

Accepted Answer

A)  Guaranteed life insurance 
B)  Universal life insurance 
C)  Flexible premium insurance 
D)  Variable life insurance insurance 
A)  Guaranteed life insurance 
B)  Universal life insurance 
C)  Flexible premium insurance 
D)  Variable life insurance insurance

Question 19

Which of the following statements about monoline insurance companies is TRUE?

Accepted Answer

A)  Monoline insurers do not guarantee the timely repayment of the bond principal and interest when a bond insurer defaults on these payments. 
B)  Monoline insurance companies often require a lengthy claims and submission and adjustment process. 
C)  Monoline insurance was first devised in 2000. 
D)  Monoline insurers have been rated AAA and must have this high rating to be effective since they transfer their rating to the bond issue being insured. 
A)  Monoline insurers do not guarantee the timely repayment of the bond principal and interest when a bond insurer defaults on these payments. 
B)  Monoline insurance companies often require a lengthy claims and submission and adjustment process. 
C)  Monoline insurance was first devised in 2000. 
D)  Monoline insurers have been rated AAA and must have this high rating to be effective since they transfer their rating to the bond issue being insured.

Question 20

Describe and contrast the various types of IRAs.

Accepted Answer

While a 401(k) is an employer-sponsored

Exam 6: Insurance Companies

Explain the concept of a multiline company.

Insurance products can be sold to individuals or groups. Describe the groups for which insurance products are typically sold to and the products sold to these groups.

There are many differences among the various types of insurance policies. Which of the below is NOT one of these differences?

Traditionally, insurance companies have been stock, but they are increasingly remutualizing due to the perceived benefits of having a publicly traded stock.

Insurance companies often have different distribution systems for individual and group products because individual product distributors deal with individuals and small company owners; and group product distributors deal with human resource departments of corporations and other organizations.

A ________ is similar in structure to any corporation or public company.

In regards to the Gramm-Leach-Bliley Act (GLB), which of the below statements is FALSE?

Which of the below is TRUE of whole life insurance?

The complication in determining the value of liabilities arises because the insurance company has committed to make payments at some time in the future, and those payments are recorded as contingent liabilities on its financial statement.

The first major investment-oriented product developed by life insurance companies was the guaranteed investment contract (GIC).

Insurance companies are really a composite of three companies. Which of the below is NOT one of these three components?

Mutual insurance companies can adopt a longer time frame in their investments, which will most likely make possible a higher long-term return.

Name and briefly describe four major types of insurance.

In 1933, Congress passed the Glass-Steagall Act. Trace the history of this act through the 20th century.

Insurance companies are monitored by ________.

There are two very important differences between calculating profitability of bread manufacturers and insurance companies. Which of the below is ONE of these?

The credit rating of an insurance company is important to a purchaser of insurance, especially for the types of insurance that may be paid well into the future, such as health insurance.

________ policies allow the policy owners to allocate their premium payments to and among separate investment accounts maintained by the insurance company, within limits, and also to be able to shift the policy cash value among the separate accounts.

Which of the following statements about monoline insurance companies is TRUE?

Describe and contrast the various types of IRAs.

Introduction

Financial Institutions, Financial Intermediaries, and Asset Management Firms

Depository Institutions: Activities and Characteristics

The U.S. Federal Reserve and the Creation of Money

Monetary Policy in the United States

Investment Companies and Exchange Traded Funds

Pension Funds

Properties and Pricing of Financial Assets

The Level and Structure of Interest Rates

The Term Structure of Interest Rates

Risk/Return and Asset Pricing Models

Primary Markets and the Underwriting of Securities

Secondary Markets

Treasury and Agency Securities Markets

Municipal Securities Markets

Markets for Common Stock: The Basic Characteristics

Markets for Common Stock: Structure and Organization

Markets for Corporate Senior Instruments: I

Markets for Corporate Senior Instruments: II

The Markets for Bank Obligations

The Residential Mortgage Market

Mortgage-Backed Securities Market

Market for Commercial Mortgage Loans and Commercial Mortgage-Backed Securities

Market for Asset-Backed Securities

Financial Futures Markets

Options Markets

Pricing of Futures and Options Contracts

The Applications of Futures and Options Contracts

OTC Interest Rate Derivatives: Forward Rate Agreements, Swaps, Caps, and Floors

Market for Credit Risk Transfer Vehicles: Credit Derivatives and Collateralized Debt Obligations

The Market for Foreign Exchange and Risk Control Instruments

Filters