Deck 4: Financial Services Companies

Question 1

All the following are true about fraternal insurers except:

A)they market their product to social organizations
B)they are nonprofit and have tax advantages
C)they specialize in life insurance
D)they typically sell coverage through commercial banks

Answer 1

D

Question 2

Which of the following statements is false?

A)factory mutuals insure only highly protected risks
B)a stock insurance company is a profit making venture in both life and property insurance
C)dividends are paid to stockholders of stock companies
D)in stock companies, non insured stockholders bear none of the risk of loss

Answer 2

D

Question 3

Lloyd's of London

A)is a large property liability insurance company with head quarters in London
B)sells stock
C)is a marketplace where separate syndicates accept exposures for their own accounts
D)sells insurance directly to the public

Answer 3

C

Question 4

Stock insurers:

A)are unincorporated
B)only sell property and liability insurance
C)cannot sell automobile insurance
D)are organized as profit making ventures

Question 5

In general,all of the following statements about Lloyd's of London are true,except:

A)Members have unlimited personal liability
B)Individual members ("names")cooperate in groups known as syndicates
C)If a syndicate is unable to pay its portion of a loss, the insured has the right to collect that unpaid portion from Lloyd's of London
D)Lloyd's is not as pre-eminent in the insurance marketplace today as it once was

Question 6

Savings bank life insurance:

A)is sold only in a few Eastern states in the U.S.
B)is a form of group credit life and disability coverage
C)can only be purchased in amounts of $5,000 or less
D)is the same as industrial life insurance

Question 7

Which of the following is not a type of mutual insurance organization?

A)assessment
B)advanced premium
C)perpetual
D)reciprocal

Question 8

A stock insurer is managed by:

A)an attorney-in-fact
B)an agency supervisor
C)a fraternal representative
D)representatives chosen by shareholders

Question 9

A mutual insurer

A)is not a corporation
B)is run by an attorney in fact
C)is legally a nonprofit organization
D)technically is a charitable organization

Question 10

Lloyd's of London:

A)is an unincorporated, not for profit insurer
B)is partly a mutual company and partly a stock company
C)sells mainly homeowners insurance to residents of London
D)operates in the surplus lines and marine insurance markets

Question 11

Which of the following statements about stock insurance companies is true?

A)stockholders provide operating capital and receive dividends
B)they are nonprofit organizations
C)the insureds own the company
D)they are more likely to provide lower cost insurance than mutuals

Question 12

The Gramm-Leach-Bliley (GLB)Act:

A)allows banks to acquire insurance companies
B)prohibits banks from acquiring insurance companies
C)allows banks to form insurance companies
D)both a and c

Question 13

A perpetual mutual:

A)requires a very large initial premium
B)is owned by stockholders who supply the capital
C)distribute all investment earnings to its policyholders in the form of a dividend
D)requires only assessments from each policy holder after the end of each year to cover losses

Question 14

A mutual insurance company might be characterized by all of the following except:

A)Policyholder ownership
B)Non profit operations
C)Taxable dividends to owners
D)Assessable policies

Question 15

The term "demutualization" refers to:

A)the process of a stock insurer converting its organizational structure to mutual
B)the board of directors' action in declaring dividends for the policy owners
C)the process of a mutual insurer converting its organizational structure to the stock form
D)the process of liquidating an insolvent mutual insurance company

Question 16

To obtain a right of ownership in a stock insurance company,you should contact:

A)an independent agent
B)a direct writer
C)a securities dealer
D)the insurance commissioner

Question 17

All the following statements are true concerning mutual insurance companies except:

A)they may pay dividends
B)they are owned by their policy holders
C)they are legally organized as perpetual partnerships
D)they are nonprofit

Question 18

A reciprocal exchange is:

A)a nonprofit corporation
B)unincorporated
C)a mutual insurance company
D)a federal insurance company

Question 19

Buying insurance from a mutual may not always be desirable because:

A)the mutual is trying to make a profit for the stockholders
B)you may be paying for other insureds' losses
C)premiums may be greater than that of a stock company if the mutual is improperly managed
D)the officers of the company are not responsible to the policy holders

Question 20

Private insurers are classified according to ownership arrangements. Distinct types mentioned in the text include all the following except:

A)stock companies
B)mutual companies
C)reciprocals
D)reinsurer

Question 21

To own a part of a stock insurance company,a person must purchase an insurance policy from that company.

Question 22

The United States' insurance industry is comprised of how many property/casualty insurers?

A)500
B)800
C)900
D)over 2,000

Question 23

Lloyd's of London is the largest mutual insurance company in the world measured by total premiums written.

Question 24

The Gramm-Leach-Bliley Act (1999)allows banks,security dealers,and insurance companies to combine together to form financial services holding companies.

Question 25

Assessment mutuals are another name for factory mutuals.

Question 26

Lloyd's of London is not an insurance company. What is it and how does it provide insurance?

Question 27

The United States' insurance industry is comprised of how many life insurance companies?

A)500
B)800
C)900
D)1,200

Question 28

Dividends from mutual insurers are not subject to federal income tax.

Question 29

The insurers efficiency and underwriting practices are much more important to the consumer than the insurers legal form of organization.

Question 30

Both stock and mutual insurance companies are incorporated

Question 31

Reciprocal exchanges provide a considerable amount of automobile insurance.

Question 32

Assessment mutuals:

A)primarily provide fire and windstorm coverage for small towns and farmers
B)do a lot more business than advance premium mutuals
C)do about the same amount of business as advance premium mutuals
D)are shareholder owned

Question 33

What is demutualization? What are some reasons companies want to demutualize?

Question 34

Dividends from mutual insurers are a part of the contract,and minimum dividends are guaranteed.

Question 35

Reciprocal exchanges are unincorporated.

Question 36

What are the basic differences between a stock and a mutual insurance company?

Question 37

The Gramm-Leach-Bliley Act is also known as the:

A)Financial Security Act
B)Financial Services Reform Act
C)Fiscal Integrity and Security Reform Act
D)Consolidated Omnibus Budget Reconciliation Act

Question 38

The United States' insurance industry employs:

A)less than 1 million people
B)about 2 million people
C)more exclusive agents than independent agents
D)more agents and claims adjusters than administrative employees

Question 39

Reciprocal exchanges are operated by managers known as notary publics.

Question 40

Mutual insurance companies legally are nonprofit organizations.

Question 41

Describe the changes that were brought about by the Gramm-Leach-Bliley Act,and,its overall impact on financial services today.

Question 42

How do a reciprocal exchange and a mutual insurance company differ?