Question 1

The top 10 property and casualty firms underwrite just under half of all the P&C premiums written.

Accepted Answer

According to recent data, the top 10 property and casualty firms underwrite roughly 48% of all P&C premiums written, supporting the statement as true.

Question 2

The cash surrender value of a life insurance policy is the present value of expected future payouts on the policy.

Accepted Answer

The cash surrender value of a life insurance policy is the amount the policyholder will receive from the insurer if they decide to terminate the policy before it matures or the insured event occurs. It is not the present value of expected future payouts.

Question 3

Life insurance policy reserves are the estimated current worth of expected future payouts.

Accepted Answer

Life insurance policy reserves are indeed the estimated current worth of expected future payouts. This estimate is calculated by using various actuarial assumptions and is maintained by the insurance company to ensure that they have enough funds to meet their future obligations to policyholders.

Question 4

Life insurers write over 50 percent of all health insurance premiums.

Accepted Answer

The answer of Life insurers write over 50 percent of...

Question 5

A man has what he believes is a mild heart attack but he doesn't go to the hospital. Instead he calls his insurance agent and doubles the amount of his life insurance. This is an example of the moral hazard problem in insurance.

Accepted Answer

This is an example of adverse selection, not moral hazard. Adverse selection occurs when one party in a transaction has more information than the other, typically the buyer knowing more than the seller, leading to a potential imbalance in the transaction. In this case, the man knows about his health risk but the insurance company does not. Moral hazard, on the other hand, would occur if, after getting insurance, the man engages in riskier behavior because he knows he's covered.

Question 6

Policy reserves are the primary asset of the typical life insurer.

Accepted Answer

The answer of Policy reserves are the primary asset of...

Question 7

The primary asset for P&C insurers is bonds.

Accepted Answer

Bonds are the primary asset for P&C insurers as they provide a relatively stable and predictable source of income while retaining liquidity.

Question 8

Most states maintain a permanent reserve fund to resolve insurance company failures.

Accepted Answer

Most states do not maintain a permanent reserve fund specifically for resolving insurance company failures; instead, they have guaranty associations or similar mechanisms that provide protection to policyholders in the event of an insurance company failure. These associations are typically funded by assessments on insurance companies after a failure occurs.

Question 9

Premiums on standard annual renewable term life will generally increase as the policyholder ages.

Accepted Answer

This is because the risk of death increases as a person ages, making the insurance company more likely to pay out a death benefit. As a result, premiums must increase to adequately cover this increased risk.

Question 10

The National Association of Insurance Commissions (NAIC)examines and regulates insurance companies.

Accepted Answer

The answer of The National Association of Insurance Commissions (NAIC)examines...

Question 11

The McFadden Act grants states the primary right to regulate insurance companies.

Accepted Answer

The McFadden Act primarily deals with the regulation of banks, particularly national banks, and their ability to establish branches, not with the regulation of insurance companies. The regulation of insurance companies is primarily the responsibility of state governments, as established by the McCarran-Ferguson Act of 1945.

Question 12

Property loss risk is generally easier to estimate than liability loss risk.

Accepted Answer

Property loss risk can be estimated based on the value of the property and potential hazards, while liability loss risk involves assessing the likelihood of someone making a claim against the insured party and the potential damages associated with the claim, which can be more difficult to predict.

Question 13

Policy reserves are a(n)

Accepted Answer

Policy reserves are the liabilities of an insurance company that represent the amount of money it expects to pay out on policies in the future. These reserves are reported on the balance sheet as a liability.

Question 14

The following type(s)of life insurance policies do not have a savings feature:

Accepted Answer

Term life insurance policies do not have a savings feature or cash value component, making them a more affordable and straightforward option for people who simply want to provide financial protection for their loved ones in case of their unexpected death.

Question 15

A 65-year-old person has saved $1,250,000 and wishes to receive 10 annual annuity payments,beginning in one year. If the annuity rate is 5.75 percent,he can expect to receive $167,829 per year.

Accepted Answer

Using the present value of an annuity formula:

PV = PMT * [(1 - (1 + r)^-n) / r]

PV = $1,250,000
PMT = $167,829
r = 5.75% or 0.0575
n = 10

PV = PMT * [(1 - (1 + r)^-n) / r]
$1,250,000 = $167,829 * [(1 - (1.0575)^-10) / 0.0575]

Therefore, the person can expect to receive $167,829 per year.

Question 16

Liability losses are more subject to social inflation than property losses.

Accepted Answer

Liability losses involve compensation for injuries or damages caused to others, which can be influenced by social attitudes and expectations. This can lead to increased jury awards, legal fees, and other expenses, contributing to social inflation. Property losses, on the other hand, are generally more straightforward in terms of assessing the value of the damage and the cost of repairs or replacement.

Question 17

Liability lawsuits related to asbestos claims are an example of long tail losses.

Accepted Answer

Asbestos-related liability lawsuits can take decades to develop and settle, which is why they are considered long tail losses.

Question 18

In a typical variable life policy the policyholder may vary the premium payments and the maturity date of the policy.

Accepted Answer

In a variable life policy, the policyholder can vary the premium payments, but the maturity date of the policy is fixed and cannot be changed.

Question 19

In property and casualty insurance the combined ratio is equal to ______________________ divided by total premiums written.

Accepted Answer

The combined ratio in property and casualty insurance is calculated by adding the loss ratio and the expense ratio (which includes general expenses and broker's commissions) and then dividing by total premiums written.

Question 20

In a universal life policy the cash value of the contract grows at a fixed-rate set by the life insurer.

Accepted Answer

In a universal life policy, the cash value of the contract can grow at a fixed-rate or a variable rate, depending on the type of policy. With a variable universal life policy, the cash value can vary depending on the performance of the underlying investment options.

Quiz 15: Insurance Companies