Financial Operations Of Insurers

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Questions Bank

Risk and Its Treatment
Insurance and Risk
Introduction to Risk Management
Enterprise Risk Management and Related Topics
Types of Insurers and Marketing Systems
Insurance Company Operations
Financial Operations of Insurers
Government Regulation of Insurance
Fundamental Legal Principles
Analysis of Insurance Contracts
Life Insurance
Life Insurance Contractual Provisions
Buying Life Insurance
Annuities and Individual Retirement Accounts
Health-Care Reform; Individual Health Insurance Coverages
Employee Benefits: Group Life and Health Insurance
Employee Benefits: Retirement Plans
Social Insurance
The Liability Risk
Auto Insurance
Auto Insurance (continued)
Homeowners Insurance, Section I
Homeowners Insurance, Section II
Other Property and Liability Insurance Coverages
Commercial Property Insurance
Commercial Liability Insurance
Crime Insurance and Surety Bonds

All Questions

Question 1

Free

Multiple Choice

LMN Mutual Insurance Company has total liabilities of $300 million. The company has total assets of $380 million. What is LMN's policyholders' surplus?

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$680 million

$340 million

$80 million

-$80 million

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Question 2

Free

Multiple Choice

Which of the following would not appear in the asset section of an insurance company's balance sheet?

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loss reserves

bonds

common stock

real estate

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Question 3

Free

Multiple Choice

Under one method of estimating a loss reserve, the reserve is based on life expectancy, duration of disability, and similar factors. This method of estimating loss reserves is called the

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judgment method.

tabular value method.

loss ratio method.

average value method.

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Question 4

Free

Multiple Choice

Reasons for the unearned premium reserve include which of the following?
I)To pay losses that occur during the policy period.
II)To pay premium refunds to policyholders in the event of cancellation.

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I only

II only

both I and II

neither I nor II

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Question 5

Free

Multiple Choice

A property and casualty insurer's loss reserve includes estimates for all of the following EXCEPT

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claims anticipated but not yet incurred.

claims reported and adjusted but not yet paid.

claims reported and filed but not yet adjusted.

claims incurred but not yet reported to the company.

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Question 6

Multiple Choice

Which of the following statements about methods for estimating loss reserves for property and casualty insurers is (are) true?
I)The judgment method involves the use of a statutory formula to estimate the loss reserve.
II)The average value method is used when the number of claims is large and the claims are settled quickly.

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I only

II only

both I and II

neither I nor II

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Question 7

Multiple Choice

One item that appears on an insurance company's financial statements is a liability that represents an estimate of the claims reported and adjusted but not yet paid, claims reported and filed but not yet adjusted, and claims incurred but not yet reported to the company. This liability is called the insurer's

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net income.

loss reserves.

admitted assets.

unearned premium reserve.

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Question 8

Multiple Choice

A loss reserve established for each individual claim when it is reported to a property and casualty insurance company is call a(n)

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admitted asset.

incurred-but-not-reported (IBNR) reserve.

unearned premium reserve.

case reserve.

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Question 9

Multiple Choice

Which of the following items would appear in the income section of an insurance company's income and expense statement?

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underwriting expense

bonds

loss reserves

premiums

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Question 10

Multiple Choice

JKL Insurance Company reported the following information on its accounting statements last year:
Premiums Written $90,000,000
Loss Adjustment Expenses $5,000,000
Underwriting Expenses $30,000,000
Premiums Earned $100,000,000
Incurred Losses $70,000,000
What was JKL's loss ratio last year?

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70.0 percent

75.0 percent

83.3 percent

90.0 percent

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Question 11

Multiple Choice

JKL Insurance Company reported the following information on its accounting statements last year:
Premiums Written $90,000,000
Loss Adjustment Expenses $5,000,000
Underwriting Expenses $30,000,000
Premiums Earned $100,000,000
Incurred Losses $70,000,000
What was JKL's expense ratio last year?

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5.0 percent

30.0 percent

33.3 percent

50.0 percent

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Question 12

Multiple Choice

JKL Insurance Company reported the following information on its accounting statements last year:
Premiums Written $90,000,000
Loss Adjustment Expenses $5,000,000
Underwriting Expenses $30,000,000
Premiums Earned $100,000,000
Incurred Losses $70,000,000
What was JKL's combined ratio last year?

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100.0

103.3

105.0

108.3

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Question 13

Multiple Choice

Which of the following statements about property and casualty insurance company operating results is (are) true?
I)An insurance company can have a combined ratio greater than 1 (or 100 percent) and still be required to pay income taxes.
II) By all measures, the property and casualty insurance industry is highly profitable when compared to other industries.

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I only

II only

both I and II

neither I nor II

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Question 14

Multiple Choice

Life insurance policyholders may borrow the cash value from their life insurance policies. Where are life insurance policy loans shown on a life insurance company's financial statements?

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as an asset

as a liability

as income

as an expense

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Question 15

Multiple Choice

MedProf Insurance markets medical malpractice insurance. The company's combined ratio in 2015 was 95.4. Its expense ratio was 25.4. What was the company's loss ratio?

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60.4

70.0

88.2

120.8

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Question 16

Multiple Choice

To protect policyholders, state laws place limitations on a life insurance company's investments. The assets backing interest-sensitive products, such as variable life insurance and variable annuities, are not subject to these restrictions. Assets backing interest-sensitive products are placed in a special account called the life insurer's

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policy reserve account.

policy loan account.

separate account.

policyholders surplus.

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Question 17

Multiple Choice

Which of the following statements is (are) true concerning investments of property and casualty insurers and life insurers?
I)Property and casualty insurance companies place greater emphasis on liquidity than do life insurers.
II)Life insurance company investments are, on average, of longer duration than property and casualty insurance company investments.

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I only

II only

both I and II

neither I nor II

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Question 18

Multiple Choice

Which of the following is an expense for a life insurance company?

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loss reserves

death benefits paid to a beneficiary

unrealized capital gains

realized capital gains

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Question 19

Multiple Choice

All of the following statements about business objectives in designing a rating system are true EXCEPT

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The rating system should encourage loss control activities.

The rating system should be independent of long-run changes in economic conditions.

The rating system should be simple to understand.

The rating system should be stable over short periods so that consumer satisfaction can be maintained.

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Question 20

Multiple Choice

All of the following statements about regulatory objectives of insurance rate making are true EXCEPT

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One purpose of rate adequacy is to maintain the solvency of insurers.

Rates unfairly discriminate if loss exposures that are similar with respect to losses and expenses are charged substantially different rates.

Insurers know in advance if the coverages marketed will be profitable, so rate regulation is not needed.

Rates are excessive if policyholders are paying substantially more than the actual value of their protection.

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Financial Operations Of Insurers

LMN Mutual Insurance Company has total liabilities of $300 million. The company has total assets of $380 million. What is LMN's policyholders' surplus?

Which of the following would not appear in the asset section of an insurance company's balance sheet?

Under one method of estimating a loss reserve, the reserve is based on life expectancy, duration of disability, and similar factors. This method of estimating loss reserves is called the

Reasons for the unearned premium reserve include which of the following?I)To pay losses that occur during the policy period.II)To pay premium refunds to policyholders in the event of cancellation.

A property and casualty insurer's loss reserve includes estimates for all of the following EXCEPT

A loss reserve established for each individual claim when it is reported to a property and casualty insurance company is call a(n)

Which of the following items would appear in the income section of an insurance company's income and expense statement?

JKL Insurance Company reported the following information on its accounting statements last year:Premiums Written $90,000,000Loss Adjustment Expenses $5,000,000Underwriting Expenses $30,000,000Premiums Earned $100,000,000Incurred Losses $70,000,000What was JKL's loss ratio last year?

JKL Insurance Company reported the following information on its accounting statements last year:Premiums Written $90,000,000Loss Adjustment Expenses $5,000,000Underwriting Expenses $30,000,000Premiums Earned $100,000,000Incurred Losses $70,000,000What was JKL's expense ratio last year?

JKL Insurance Company reported the following information on its accounting statements last year:Premiums Written $90,000,000Loss Adjustment Expenses $5,000,000Underwriting Expenses $30,000,000Premiums Earned $100,000,000Incurred Losses $70,000,000What was JKL's combined ratio last year?

Life insurance policyholders may borrow the cash value from their life insurance policies. Where are life insurance policy loans shown on a life insurance company's financial statements?

MedProf Insurance markets medical malpractice insurance. The company's combined ratio in 2015 was 95.4. Its expense ratio was 25.4. What was the company's loss ratio?

Which of the following is an expense for a life insurance company?

All of the following statements about business objectives in designing a rating system are true EXCEPT

All of the following statements about regulatory objectives of insurance rate making are true EXCEPT

Reasons for the unearned premium reserve include which of the following?
I)To pay losses that occur during the policy period.
II)To pay premium refunds to policyholders in the event of cancellation.

JKL Insurance Company reported the following information on its accounting statements last year:
Premiums Written $90,000,000
Loss Adjustment Expenses $5,000,000
Underwriting Expenses $30,000,000
Premiums Earned $100,000,000
Incurred Losses $70,000,000
What was JKL's loss ratio last year?

JKL Insurance Company reported the following information on its accounting statements last year:
Premiums Written $90,000,000
Loss Adjustment Expenses $5,000,000
Underwriting Expenses $30,000,000
Premiums Earned $100,000,000
Incurred Losses $70,000,000
What was JKL's expense ratio last year?

JKL Insurance Company reported the following information on its accounting statements last year:
Premiums Written $90,000,000
Loss Adjustment Expenses $5,000,000
Underwriting Expenses $30,000,000
Premiums Earned $100,000,000
Incurred Losses $70,000,000
What was JKL's combined ratio last year?