Question 1

The problem of adverse selection

Accepted Answer

A) implies that many people who do not need insurance coverage have it through group plans. 
B) means that those people who apply for insurance are the least likely to need insurance coverage. 
C) causes insurance underwriters to alter the health statistics of the general population when determining appropriate premiums. 
D) creates a savings element along with the insurance component of the premium and policy. 
E) does not exist in the insurance industry. 
A) implies that many people who do not need insurance coverage have it through group plans. 
B) means that those people who apply for insurance are the least likely to need insurance coverage. 
C) causes insurance underwriters to alter the health statistics of the general population when determining appropriate premiums. 
D) creates a savings element along with the insurance component of the premium and policy. 
E) does not exist in the insurance industry. C

Question 2

The policy reserves on the liability side of the balance sheet of a life insurance company are estimated based on actuarial assumptions of expected future liability commitments on currently existing contracts.

Accepted Answer

A) True 
 B)False  True

Question 3

PACICC

Accepted Answer

A) is sponsored by provincial/territorial insurance regulators. 
B) is an industry-sponsored fund. 
C) requires contributions from each province and territory when there is a failure of an insurance company in Canada. 
D) makes policyholder payments immediately in the event of an insurance company failure. 
E) is regulated by OSFI. 
A) is sponsored by provincial/territorial insurance regulators. 
B) is an industry-sponsored fund. 
C) requires contributions from each province and territory when there is a failure of an insurance company in Canada. 
D) makes policyholder payments immediately in the event of an insurance company failure. 
E) is regulated by OSFI. B

Question 4

Property & casualty underwriting risk only exists when the premiums generated on a given insurance line are less than the claims (losses) on the line.

Accepted Answer

A) True 
 B)False

Question 5

An insurance company collected $31.0 million in premiums and disbursed $28 million in losses. Loss adjustment expenses amounted to $5.0 million. The firm is profitable

Accepted Answer

A) if dividends paid to policyholders is $4 million and income generated on investments is $4 million. 
B) if dividends paid to policyholders is $10 million and income generated on investments is $14 million. 
C) if dividends paid to policyholders is $6 million and income generated on investments is $2 million. 
D) if dividends paid to policyholders is $10 million and income generated on investments is $4 million. 
E) if dividends paid to policyholders is $4 million and income generated on investments is $2 million. 
A) if dividends paid to policyholders is $4 million and income generated on investments is $4 million. 
B) if dividends paid to policyholders is $10 million and income generated on investments is $14 million. 
C) if dividends paid to policyholders is $6 million and income generated on investments is $2 million. 
D) if dividends paid to policyholders is $10 million and income generated on investments is $4 million. 
E) if dividends paid to policyholders is $4 million and income generated on investments is $2 million.

Question 6

Due to a recent increase in demand for new insurance products, the number of life insurance companies as been increasing in Canada.

Accepted Answer

A) True 
 B)False

Question 7

For property & casualty insurers, loss rates are more predictable for

Accepted Answer

A) low-severity high-frequency events. 
B) low-severity low-frequency events. 
C) high-severity high-frequency events. 
D) high severity low-frequency events. 
E) low severity medium-frequency events. 
A) low-severity high-frequency events. 
B) low-severity low-frequency events. 
C) high-severity high-frequency events. 
D) high severity low-frequency events. 
E) low severity medium-frequency events.

Question 8

The cash surrender value of a life insurance policy represents the payment to the insured's beneficiaries at the time of death.

Accepted Answer

A) True 
 B)False

Question 9

The process of life insurance uses risk pooling to transfer income-related uncertainties from a group of individuals to an insured individual.

Accepted Answer

A) True 
 B)False

Question 10

Variable universal life insurance policies

Accepted Answer

A) have fixed premiums and a fixed benefit payout. 
B) have fixed premiums, but allow the benefit payout to vary with investment returns. 
C) have a fixed benefit payout, but allow the premium to vary with investment returns. 
D) allow both the premium and benefit payout to vary with investment returns. 
E) allow both the premium and benefit payout to vary with investment returns, but have a fixed maturity date. 
A) have fixed premiums and a fixed benefit payout. 
B) have fixed premiums, but allow the benefit payout to vary with investment returns. 
C) have a fixed benefit payout, but allow the premium to vary with investment returns. 
D) allow both the premium and benefit payout to vary with investment returns. 
E) allow both the premium and benefit payout to vary with investment returns, but have a fixed maturity date.

Question 11

Unlike the banking industry, globalization of financial services is having little or no effect on the insurance industry.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following insurance products protects a lender against a borrower's death prior to repayment of the debt?

Accepted Answer

A) Credit life. 
B) Universal life. 
C) Whole life. 
D) Endowment life. 
E) Variable life. 
A) Credit life. 
B) Universal life. 
C) Whole life. 
D) Endowment life. 
E) Variable life.

Question 13

Property insurance involves coverage against the loss of personal property as well as protection against legal liability claims.

Accepted Answer

A) True 
 B)False

Question 14

If losses on a particular line of medical malpractice insurance were $650 million and premiums earned were $575 million, the loss ratio would be

Accepted Answer

A) 1.13 implying that this line of insurance is profitable. 
B) 1.13 implying that this line of insurance is unprofitable. 
C) 0.88 implying that this line of insurance is profitable. 
D) 0.88 implying that this line of insurance is unprofitable. 
E) -$75 million implying that this line of insurance is unprofitable. 
A) 1.13 implying that this line of insurance is profitable. 
B) 1.13 implying that this line of insurance is unprofitable. 
C) 0.88 implying that this line of insurance is profitable. 
D) 0.88 implying that this line of insurance is unprofitable. 
E) -$75 million implying that this line of insurance is unprofitable.

Question 15

Life insurance companies also manage private pension plans that may include guaranteed investment certificates (GICs).

Accepted Answer

A) True 
 B)False

Question 16

An insurance policy that allows both the premium amount and the maturity of the life contract to be changed by the insured is called

Accepted Answer

A) term life. 
B) universal life. 
C) whole life. 
D) endowment life. 
E) variable life. 
A) term life. 
B) universal life. 
C) whole life. 
D) endowment life. 
E) variable life.

Question 17

You start an annuity with $1 million and expect to receive 12 equal payments beginning at the end of the first year. The guaranteed annual interest rate is 6 percent. The annual payments that you expect to collect are

Accepted Answer

A) $88,333.33. 
B) $119,277.03. 
C) $59,638.51. 
D) $56,262.75. 
E) $112,525.50. 
A) $88,333.33. 
B) $119,277.03. 
C) $59,638.51. 
D) $56,262.75. 
E) $112,525.50.

Question 18

Unexpected increases in inflation cause loss rates to increase more for long-tail risk than for short-tail risks.

Accepted Answer

A) True 
 B)False

Question 19

An insurance policy in which fixed premium payments are invested in mutual funds of stocks, bonds, and money market instruments is called

Accepted Answer

A) term life. 
B) universal life. 
C) whole life. 
D) endowment life. 
E) variable life. 
A) term life. 
B) universal life. 
C) whole life. 
D) endowment life. 
E) variable life.

Question 20

Assuris is a private, non-profit corporation run and administered by private life and health insurance companies in Canada.

Accepted Answer

A) True 
 B)False

Exam 6: Insurance Companies

The problem of adverse selection

The policy reserves on the liability side of the balance sheet of a life insurance company are estimated based on actuarial assumptions of expected future liability commitments on currently existing contracts.

PACICC

Property & casualty underwriting risk only exists when the premiums generated on a given insurance line are less than the claims (losses) on the line.

An insurance company collected $31.0 million in premiums and disbursed $28 million in losses. Loss adjustment expenses amounted to $5.0 million. The firm is profitable

Due to a recent increase in demand for new insurance products, the number of life insurance companies as been increasing in Canada.

For property & casualty insurers, loss rates are more predictable for

The cash surrender value of a life insurance policy represents the payment to the insured's beneficiaries at the time of death.

The process of life insurance uses risk pooling to transfer income-related uncertainties from a group of individuals to an insured individual.

Variable universal life insurance policies

Unlike the banking industry, globalization of financial services is having little or no effect on the insurance industry.

Which of the following insurance products protects a lender against a borrower's death prior to repayment of the debt?

Property insurance involves coverage against the loss of personal property as well as protection against legal liability claims.

If losses on a particular line of medical malpractice insurance were $650 million and premiums earned were $575 million, the loss ratio would be

Life insurance companies also manage private pension plans that may include guaranteed investment certificates (GICs).

An insurance policy that allows both the premium amount and the maturity of the life contract to be changed by the insured is called

You start an annuity with $1 million and expect to receive 12 equal payments beginning at the end of the first year. The guaranteed annual interest rate is 6 percent. The annual payments that you expect to collect are

Unexpected increases in inflation cause loss rates to increase more for long-tail risk than for short-tail risks.

An insurance policy in which fixed premium payments are invested in mutual funds of stocks, bonds, and money market instruments is called

Assuris is a private, non-profit corporation run and administered by private life and health insurance companies in Canada.

Why Are Financial Institutions Special

Deposit-Taking Institutions

Finance Companies

Securities, Brokerage, and Investment Banking

Mutual Funds, Hedge Funds, and Pension Funds

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loans

Credit Risk: Loan Portfolio and Concentration Risk

Liquidity Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Capital Adequacy

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization Index

Filters