Question 1

Match the descriptions with their terms:
-That portion of an insurance premium designed to cover the insurer's expenses is known as the _________________.

Accepted Answer

A)  ceding company 
B)  cession 
C)  credibility 
D)  excess line treaty or first surplus treaty 
E)  excess-of-loss treaty
F) formal facultative agreement
G) severity
H) gross premium
I) independent adjusters
J) informal facultative agreement
K) inspection report
L) loading
M) loss ratio
N) manual, or class, rating
O) merit, or individual,
P) policy writing
Q) pools or syndicates
R) preferred risks
S) production
T) pure premium
U) quota share treaty
V) rate making
W) rating bureau, or rate-making association
X) reinsurance
Y) reinsurance pool or exchange
Z) schedule rating

Question 2

Match the descriptions with their terms:
-Under a/an _________________, the reinsurer is bound to take certain types of risks if offered by the ceding company, but the decision of whether or not to reinsure remains with the ceding company.

Accepted Answer

A)  ceding company 
B)  cession 
C)  credibility 
D)  excess line treaty or first surplus treaty 
E)  excess-of-loss treaty
F) formal facultative agreement
G) severity
H) gross premium
I) independent adjusters
J) informal facultative agreement
K) inspection report
L) loading
M) loss ratio
N) manual, or class, rating
O) merit, or individual,
P) policy writing
Q) pools or syndicates
R) preferred risks
S) production
T) pure premium
U) quota share treaty
V) rate making
W) rating bureau, or rate-making association
X) reinsurance
Y) reinsurance pool or exchange
Z) schedule rating

Question 3

Match the descriptions with their terms:
-A/An _________________ is an independent report on an applicant prepared by an outside agency for the purpose of assisting the underwriter.

Accepted Answer

A)  ceding company 
B)  cession 
C)  credibility 
D)  excess line treaty or first surplus treaty 
E)  excess-of-loss treaty
F) formal facultative agreement
G) severity
H) gross premium
I) independent adjusters
J) informal facultative agreement
K) inspection report
L) loading
M) loss ratio
N) manual, or class, rating
O) merit, or individual,
P) policy writing
Q) pools or syndicates
R) preferred risks
S) production
T) pure premium
U) quota share treaty
V) rate making
W) rating bureau, or rate-making association
X) reinsurance
Y) reinsurance pool or exchange
Z) schedule rating

Question 4

Match the descriptions with their terms:
-A rating method in which the rate applies uniformly to each member of a group is called _________________.

Accepted Answer

A)  ceding company 
B)  cession 
C)  credibility 
D)  excess line treaty or first surplus treaty 
E)  excess-of-loss treaty
F) formal facultative agreement
G) severity
H) gross premium
I) independent adjusters
J) informal facultative agreement
K) inspection report
L) loading
M) loss ratio
N) manual, or class, rating
O) merit, or individual,
P) policy writing
Q) pools or syndicates
R) preferred risks
S) production
T) pure premium
U) quota share treaty
V) rate making
W) rating bureau, or rate-making association
X) reinsurance
Y) reinsurance pool or exchange
Z) schedule rating

Question 5

Insurance Company XYZ has an agreement to bear 15 percent of all losses and to retain 15 percent of all premiums in a certain type of insurance. Apparently, XYZ has reinsurance of which type?

Accepted Answer

A)  formal facultative, 
B)  informal facultative, 
C)  excess of loss, 
D)  spread of loss, 
E)  quota share.

Question 6

The amount of risk retained by a ceding company for its own account is known as the cession.

Accepted Answer

A) True 
 B)False

Question 7

Claims management in insurance is characterized by all but one of the following:

Accepted Answer

A)  Overly liberal claims-settlement procedures may be as bad as stingy claims-settlement procedures, 
B)  Claims-settlement problems are generally more complex in life insurance than in property and liability insurance, 
C)  An independent adjuster generally serves the small insurer, 
D)  Often negotiations with the claims department is the only contact that the insurance buyer has with the insurer.

Question 8

The pure premium is

Accepted Answer

A)  the same as the gross premium, 
B)  the gross premium increased for loading, 
C)  the gross premium less the allowance for loading, 
D)  the insurance rate multiplied by the number of exposure units, 
E)  another name for a credible premium.

Question 9

Match the descriptions with their terms:
-The two factors that must be estimated to determine loss and that are subject to errors in forecasting are frequency of occurrence and _________________ of loss.

Accepted Answer

A)  ceding company 
B)  cession 
C)  credibility 
D)  excess line treaty or first surplus treaty 
E)  excess-of-loss treaty
F) formal facultative agreement
G) severity
H) gross premium
I) independent adjusters
J) informal facultative agreement
K) inspection report
L) loading
M) loss ratio
N) manual, or class, rating
O) merit, or individual,
P) policy writing
Q) pools or syndicates
R) preferred risks
S) production
T) pure premium
U) quota share treaty
V) rate making
W) rating bureau, or rate-making association
X) reinsurance
Y) reinsurance pool or exchange
Z) schedule rating

Question 10

Match the descriptions with their terms:
-The name given a primary insurer transferring part of the risk to the reinsurer is the _________________.

Accepted Answer

A)  ceding company 
B)  cession 
C)  credibility 
D)  excess line treaty or first surplus treaty 
E)  excess-of-loss treaty
F) formal facultative agreement
G) severity
H) gross premium
I) independent adjusters
J) informal facultative agreement
K) inspection report
L) loading
M) loss ratio
N) manual, or class, rating
O) merit, or individual,
P) policy writing
Q) pools or syndicates
R) preferred risks
S) production
T) pure premium
U) quota share treaty
V) rate making
W) rating bureau, or rate-making association
X) reinsurance
Y) reinsurance pool or exchange
Z) schedule rating

Question 11

An insurance rate must by law in most states meet all but one of the following requirements:

Accepted Answer

A)  must be adequate to meet future losses, 
B)  must not be excessive, 
C)  must be fair, 
D)  must encourage loss control efforts by the insured, 
E)  all of these conditions must be met.

Question 12

The proportion of general account assets of life insurers invested in bonds is most closely approximated by

Accepted Answer

A)  17 percent, 
B)  9 percent, 
C)  20 percent, 
D)  55 percent, 
E)  73 percent.

Question 13

The most common types of pro-rata reinsurance treaties are surplus and quota share treaties.

Accepted Answer

A) True 
 B)False

Question 14

Match the descriptions with their terms:
-An organization that helps individual insurers develop satisfactory rates is known as a/an _________________.

Accepted Answer

A)  ceding company 
B)  cession 
C)  credibility 
D)  excess line treaty or first surplus treaty 
E)  excess-of-loss treaty
F) formal facultative agreement
G) severity
H) gross premium
I) independent adjusters
J) informal facultative agreement
K) inspection report
L) loading
M) loss ratio
N) manual, or class, rating
O) merit, or individual,
P) policy writing
Q) pools or syndicates
R) preferred risks
S) production
T) pure premium
U) quota share treaty
V) rate making
W) rating bureau, or rate-making association
X) reinsurance
Y) reinsurance pool or exchange
Z) schedule rating

Question 15

Match the descriptions with their terms:
-The _________________ is the portion of an insurance premium designed to cover the expected loss.

Accepted Answer

A)  ceding company 
B)  cession 
C)  credibility 
D)  excess line treaty or first surplus treaty 
E)  excess-of-loss treaty
F) formal facultative agreement
G) severity
H) gross premium
I) independent adjusters
J) informal facultative agreement
K) inspection report
L) loading
M) loss ratio
N) manual, or class, rating
O) merit, or individual,
P) policy writing
Q) pools or syndicates
R) preferred risks
S) production
T) pure premium
U) quota share treaty
V) rate making
W) rating bureau, or rate-making association
X) reinsurance
Y) reinsurance pool or exchange
Z) schedule rating

Question 16

Match the descriptions with their terms:
-The _________________ is an example of a surplus treaty.

Accepted Answer

A)  ceding company 
B)  cession 
C)  credibility 
D)  excess line treaty or first surplus treaty 
E)  excess-of-loss treaty
F) formal facultative agreement
G) severity
H) gross premium
I) independent adjusters
J) informal facultative agreement
K) inspection report
L) loading
M) loss ratio
N) manual, or class, rating
O) merit, or individual,
P) policy writing
Q) pools or syndicates
R) preferred risks
S) production
T) pure premium
U) quota share treaty
V) rate making
W) rating bureau, or rate-making association
X) reinsurance
Y) reinsurance pool or exchange
Z) schedule rating

Question 17

Associations such as Industrial Risk Insurers are important in underwriting.

Accepted Answer

A) True 
 B)False

Question 18

The concept of "fairness" in insurance rate making is best described by which of the following?

Accepted Answer

A)  The rate should reflect all individual differences that may affect future loss experience, 
B)  The rate should reflect the loss experience of the class into which an insured is placed, 
C)  The rate should be higher for those age groups having the most losses, and less for other age groups, 
D)  The rate should be high enough to cover all losses of the insurer, 
E)  The rate should be low enough for all insureds needing insurance to afford coverage.

Question 19

The Insurance Services Office (ISO) is a loss adjustment office for insurance companies.

Accepted Answer

A) True 
 B)False

Question 20

A discount from a manual rate is called a deviation.

Accepted Answer

A) True 
 B)False

Exam 23: Functions and Organization of Insurers

Match the descriptions with their terms: -That portion of an insurance premium designed to cover the insurer's expenses is known as the _________________.

Match the descriptions with their terms: -Under a/an _________________, the reinsurer is bound to take certain types of risks if offered by the ceding company, but the decision of whether or not to reinsure remains with the ceding company.

Match the descriptions with their terms: -A/An _________________ is an independent report on an applicant prepared by an outside agency for the purpose of assisting the underwriter.

Match the descriptions with their terms: -A rating method in which the rate applies uniformly to each member of a group is called _________________.

Insurance Company XYZ has an agreement to bear 15 percent of all losses and to retain 15 percent of all premiums in a certain type of insurance. Apparently, XYZ has reinsurance of which type?

The amount of risk retained by a ceding company for its own account is known as the cession.

Claims management in insurance is characterized by all but one of the following:

The pure premium is

Match the descriptions with their terms: -The two factors that must be estimated to determine loss and that are subject to errors in forecasting are frequency of occurrence and _________________ of loss.

Match the descriptions with their terms: -The name given a primary insurer transferring part of the risk to the reinsurer is the _________________.

An insurance rate must by law in most states meet all but one of the following requirements:

The proportion of general account assets of life insurers invested in bonds is most closely approximated by

The most common types of pro-rata reinsurance treaties are surplus and quota share treaties.

Match the descriptions with their terms: -An organization that helps individual insurers develop satisfactory rates is known as a/an _________________.

Match the descriptions with their terms: -The _________________ is the portion of an insurance premium designed to cover the expected loss.

Match the descriptions with their terms: -The _________________ is an example of a surplus treaty.

Associations such as Industrial Risk Insurers are important in underwriting.

The concept of "fairness" in insurance rate making is best described by which of the following?

The Insurance Services Office (ISO) is a loss adjustment office for insurance companies.

A discount from a manual rate is called a deviation.