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Insurance Studies Exam 2 โ FIN 341
Practice Questions & Explanations.
- An insurer has the following data: loss ratio=70%; combined ratio=105%; investment profit (or income) ratio=10%; expense ratio=35%. It made an operating ___ of _____ - << Correct Answer >>โ
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profit, 5% and 1- (1.05-.1)
- Assume that ABC Insurance has a surplus share treaty with DEF Re. ABC has a retention limit of $200,000 for a single policy and four lines are ceded to DEF Re. Assume that a $100,000 property insurance policy is issued. How much does DEF Re pay if a $100,000 loss occurs? - << Correct Answer >>โ
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$0 only pay a loss if the loss is greater than the policy
- An insurer has a combined ratio=105%, an investment profit (or income)
ratio of 10%, and an expense ratio of 30%. Its operating ratio is - << Correct Answer >>โ
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Greater than 91% but less than 96% (1.05-.10)
- Assume that Apex fire insurance has a surplus share treaty with Geneva Re. Apex has a retention limit of $200,000 for a single policy and that four lines ($800,000) are ceded to Geneva Re. Assume a $400,000 policy is issued. A $10,000 loss occurs. How much does Geneva Re. pay of that loss? - << Correct Answer >>โ
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$5,000 ($200,000/$400,000)$10,
- Which of the following is an optional, case-by-case reinsurance me - <<
Correct Answer >>โ
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Facultative
- The U.S. Property/Casualty industry has the following data for 2017 (in $ billions). Net premiums Written = 552.6; Premiums Earned = 540.6; Losses and Loss Adjustment Expenses Incurred = 410.2; Net Investment Income =
49; Underwriting Expenses = 151.1. The loss ratio is - << Correct Answer
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between 70% and 80% (410.2/540.6)
- The U.S. Property/Casualty industry has the following data for 2017 (in $ billions). Net premiums Written = 552.6; Premiums Earned = 540.6; Losses and Loss Adjustment Expenses Incurred = 410.2; Net Investment Income = 49; Underwriting Expenses = 151.1. The expense ratio is: - << Correct Answer >>โ
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between 20% and 30% (151.1/552.6)
- Which of the following reinsurance arrangements is most effect at
protecting against high loss ratios following large losses? - << Correct Answer >>โ
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Excess of loss
- An insurer has a Loss Ratio of 20% and an Expense Ratio of 25%. It has
made an underwriting ______ of ______ - << Correct Answer >>โ
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profit, 55%, 1-(.2+.25)
10.A/An _________ is an insurer that is chartered by (or incorporated in) a
foreign country but is licensed to operate in a US state. - << Correct Answer >>โ
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Alien Insurer
11.____ is the inducement of a policy owner to drop an existing policy and replace it with a new one that provides little or no economic benefit to the client. - << Correct Answer >>โ
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Twisting
12.The $300,000 guaranty fund limit primarily provides an incentive for _________ policyholders to select insurance companies that are financially strong - << Correct Answer >>โ
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Commercial Lines
21.As of 2017, which personal lines insurer in Mississippi had the highest
market share? - << Correct Answer >>โ
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State Farm
22.A mutual insurer is a corporation owned by the policy owners - <<
Correct Answer >>โ
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True
23.A captive insurer is an insurer - << Correct Answer >>โ
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owned by a parent firm (that is not an insurance company) for the purposes of insuring the parent firm's loss exposures.
24.Mutual insurers demutualize in order to: - << Correct Answer >>โ
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Access equity capital and improve efficiency
25.Lloyd's of London is not an insurance company, it is an insurance market -
<< Correct Answer >>โ
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True
26.An insurance agent that represents several unrelated insurance
companies is called a/an - << Correct Answer >>โ
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independent agent
27.A surplus lines (or wholesale) broker is licensed to place business with
a/an - << Correct Answer >>โ
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nonadmitted insurer
28.Which of the following statements regarding binders is correct - <<
Correct Answer >>โ
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property and casualty insurers have the power to bind the insurer
29.A wholesale insurance broker is an intermediary between - << Correct
Answer >>โ
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a retail agent/broker and an insurance company
30.nsurance producers are responsible for - << Correct Answer >>โ
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selling insurance
31.Assume an actual loss ratio of 90% and an expected loss ratio of 45%. According to the loss ratio ratemaking method, how much should premiums increase in the next period? - << Correct Answer >>โ
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100% (.9-.45)/.
32.An insurer has an auto portfolio with 500 autos. For this portfolio, the loss adjustment expenses and losses is $300,000. What will be the pure premium? - << Correct Answer >>โ
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$600 $300,000/
33.______ is the tendency of people with a higher-than-average chance of
loss to seek insurance at standard rates. - << Correct Answer >>โ
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Adverse Selection
34.The amount of insurance that is retained by the ceding company is known
as - << Correct Answer >>โ
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The retention limit
35.Assume that you have an actual loss ratio of 50% and expected loss ratio of 40%. Further assume a credibility factor of 0.5. According the experience ratemaking method, how much should premiums increase in the next period? - << Correct Answer >>โ
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12.5%, ((50%- 40%)/40%)x.
36.You have a house that you would like to insure for $200,000. The rate per
$1,000 of coverage is $8 per year. What would be annual premium? - << Correct Answer >>โ
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$1,600, ($200,000/$1,000)x$
