Tutorial 3

1.

1 point

New Liability Insurance Company began operations last year and has been very successful. The company's ability to grow is being restricted by an accounting rule that requires insurers to realize acquisition expenses immediately, while not realizing premiums received as income until some time has passed. Reinsurance is often used in such cases for which of the following purposes?

to reduce the unearned premium reserve

to withdraw from a line of business or territory

to stabilize profitability

to provide protection against catastrophic losses

2.

1 point

All of the following statements about reinsurance are true EXCEPT

A reinsurer may also purchase reinsurance

The insurer transferring business to a reinsurer is called the ceding insurer

Reinsurance is an arrangement by which the primary insurer that initially writes the insurance transfers to another insurer part or all of the potential losses associated with such insurance

The amount of insurance transferred to a reinsurer is called the net retention

3.

1 point

Jan is employed by an insurance company. She reviews applications to determine whether her company should insure the applicant. If insurable, Jan assigns the applicant to a rating category based on the applicant's degree of risk. Jan is a(n)

actuary

claims adjustor

underwriter

loss control engineer

4.

1 point

Amy heads the legal staff of a large property and liability insurance company. Amy's staff is likely involved in all of the following activities EXCEPT

reviewing policy wording before policies are adopted and marketed

providing legal advice about marketing, taxation, and insurance law

recouping subrogation recoveries from third parties who injured individuals insured by Amy's company

reviewing applications to determine if the company should insure the risk

5.

1 point

The function of an actuary is to

invest insurance company assets

negotiate reinsurance treaties

adjust claims

determine premium rates

6.

1 point

All of the following are functions of the marketing department of an insurance company EXCEPT

to identify production goals.

to develop new products.

to make final underwriting decisions.

to advertise the insurer's products.

7.

1 point

The unearned premium reserve of an insurer is

a liability representing the unearned portion of gross premiums on outstanding policies

a liability representing claims that have been filed, but not yet paid

the portion of the insurer's net worth belonging to policyowners

an asset representing the investments made with premium income

8.

1 point

All of the following are reasons for a primary insurer to use reinsurance EXCEPT

to stabilize profits

to protect against catastrophic losses

to increase underwriting capacity

to increase the unearned premium reserve

9.

1 point

One source of life and health insurance underwriting information is an organization that life and health insurance companies can join. As a member, life and health insurance companies report health impairments of applicants, and this information is shared with member companies. Although the information is shared, the underwriting decision of the member company is not disclosed. What is this organization called?

Fair Isaac Corporation (FICO)

National Association of Insurance Commissioners (NAIC)

National Association of Mutual Insurance Companies (NAMIC)

Medical Information Bureau (MIB)

10.

1 point

Common sources of underwriting information for life and health insurance include all of the following EXCEPT

the application

the Medical Information Bureau

a physical examination

the applicant's income tax return

11.

1 point

All of the following statements about life insurance company investments are true EXCEPT

Funds for these investments are derived primarily from premium income, investment earnings, and maturing investments that must be reinvested

A primary objective in making these investments is safety of principal

Income from these investments reduces the cost of insurance

The majority of these investments are short-term investments

12.

1 point

All of the following statements about the settlement of a claim are true EXCEPT

The adjustor must file the proof of loss, which is a sworn statement supporting his or her decision regarding a claim

The insurance policy usually has a provision specifying how a notice of loss is to be made to the insurance company

One step in the investigation of a claim is to determine whether the policy was in force when the loss occurred

A policy provision may determine how disputes over claim settlements are resolved

13.

1 point

A reinsurance contract that is entered into on a case-by-case basis after an application for insurance is received by a primary insurer is called

a reinsurance pool

facultative reinsurance

retrocession

automatic treaty reinsurance

14.

1 point

Huge Insurance Company is a property insurer that is interested in protecting itself against cumulative losses that exceed $200 million during the year. This protection can best be obtained using

a surplus-share reinsurance treaty

a quota-share reinsurance treaty

a reinsuance pool

an excess-of-loss reinsurance treaty

15.

1 point

Insurers obtain data which can be used to determine rates from

pricing pools

reciprocal exchanges

insurance advisory organizations

banks