Deck 1: Accredited Financial Examiner

Question 1

______ is used when the rates for large or usual risks are established almost entirely by the skill and experience of the rate maker.

A) Expertise rating
B) Premium rating
C) Class rating
D) Individual rating

Answer 1

D

Question 2

An estimate due to time lags in the receipt of reports from cendants is called reinsurance.

Answer 2

True

Question 3

Changes in existing policies that may result in additional premiums or return premiums, such as increases or decreases in coverage limits, in:

A) Endorsement
B) Audit premiums
C) Change plan
D) Policyholder dividends

Answer 3

A

Question 4

Outgoing premiums less return premiums arising from reinsurance purchased from other insurance entities are called:

A) Rating premiums
B) Direct premiums
C) Assumed reinsurance premiums
D) Ceded reinsurance premiums

Question 5

What are batched, and input control totals are established before delivery to data entry?

A) Coded applications
B) Billing premiums
C) Issuing policies
D) Business applications

Question 6

The method used to account for insurance and reinsurance contracts that do not transfer insurance risk is referred to as:

A) Accounted revenue
B) Premium deficiency
C) Retained balance
D) Deposit accounting

Question 7

Which of the following is NOT the step of the transaction cycle?

A) Evaluating and accepting expenses
B) Issuing policies
C) Billing and collecting premiums
D) Home office and branch office recordkeeping

Question 8

The adjustments of the premium during the period of coverage based on actual experience during that same period are called:

A) Policy rating
B) Schedule rating
C) Experience rating
D) Retrospective Experience rating

Question 9

In many states, a claims-made insurance policy is required to:

A) contain an extended-reporting clause
B) provide for purchase, at the policyholder's option
C) provide for automatic tail coverage
D) All of the above

Question 10

is provided by original documents is more reliable than audit evidence provided by photocopies or facsimiles.

A) Enterprise evidence
B) Property evidence
C) Audit evidence
D) Regulatory evidence

Question 11

The agents submit to the insurance entity a statement of all policies issued or due during the current month, and the net amount of the statement is subsequently to be paid in accordance with the agency agreement, is an account current of:

A) Insurance billing
B) Direct billing
C) Rendering basis
D) Billing basis

Question 12

When policy periods expire, the premiums written are earned and are recognized as:

A) Liabilities
B) Expenses
C) Revenues
D) None of the above

Question 13

In which premium income less return premiums arising from policies issued by the entity collecting the premiums and acting as the primary insurance carrier?

A) Indirect premium
B) Direct premium
C) Reinsurance premium
D) Entity premium

Question 14

The SEC rules clarify that management's assessment and report is limited to internal control over financial reporting.

Question 15

At the end of each reporting period, unearned premiums are calculated and the change in unearned premiums is recorded as a change or debit to premium income.

Question 16

The two basic methods for billing premiums are:

A) policy and direct billing
B) agency and direct billing
C) collecting and indirect billing
D) business and direct billing

Question 17

In which policies the contract provides for insurance coverage for a fixed period of duration and enables the insurer to not renew the contract or adjust the provisions of the contract at the end of the contract period?

A) Short duration
B) Policy duration
C) Contract duration
D) None of the above

Question 18

The subsequent measurement of the deposits is based upon whether the insurance and reinsurance contract:

A) transfer only significant timing risk
B) transfer only significant underwriting risk
C) transfer neither significant timing nor underwriting risk
D) All of the above

Question 19

The pro rata portion of premiums written allocable to unexpired policy periods represents unearned premiums, which are reflected as in the balance sheet.

A) Liabilities
B) Expenses
C) Revenues
D) None of the above

Question 20

Which of the following is the objective to the evaluation and risk-accepting function?

A) Evaluating and acceptability of risk
B) Determining the premium
C) Evaluation of entity's capacity to retain risk
D) All of the above

Question 21

Final approval should be obtained prior to placing a new system into operation is the activity that can be fall into which control?

A) Organizations and operations control
B) System development control
C) Access control
D) Procedural control

Question 22

Principal objectives of state statutes are: to investigate and settle some or all of the

A) restrict investments of insurance entities
B) prescribe methods of admitted asset recovery
C) acquisition of risk-based capitals
D) Both B & C

Question 23

Risk retention group is:

A) A public entity formed by the members of the public pool primarily to provide business risk competency to the members.
B) A business entity formed by the members of the private pool primarily to provide commercial asset insurance to the members.
C) An insurance entity formed by the members of the private pool primarily to provide commercial liability insurance to the members.
D) An insurance entity formed by the members of the public pool primarily to provide commercial expense insurance to the members.

Question 24

Which of the following is NOT the interrelated component of internal control?

A) Control environment
B) Risk assessment
C) Control activities
D) Planning control

Question 25

Which are the types of misstatements relevant to the auditor's consideration of fraud in a financial statement audit?

A) misstatements arising from fraudulent financial reporting
B) misstatements arising from misappropriations of assets
C) Both A & B
D) Neither A nor B

Question 26

Which of the following may NOT involve a high degree of management judgment and subjectivity and may present risks of material misstatement due to fraud?

A) Investments
B) Deferred acquisition costs
C) Reinsurance
D) key estimates

Question 27

An attitude that includes a questioning mind and a critical assessment of audit evidence is called:

A) Operational skepticism
B) Audit skepticism
C) Professional skepticism
D) None of the above

Question 28

In which plan all activities writing automobile insurance in a state are allocated a share of the involuntary business on an equitable basis?

A) Automobile equitability
B) Automobile insurance
C) Automobile assurance
D) None of the above

Question 29

The contracts that are not subject to unilateral changes in its provision and requires the performance of various functions and services for an extended period is called:

A) Short-duration
B) Long-duration
C) Medium-duration
D) Fixed-duration

Question 30

The arrangements by which pools manage separate accounts for each pool member from which the losses of that member are paid is called:

A) employee pools
B) claim-serving pools
C) singular entity pools
D) None of the above

Question 31

Coverage of risks that do not fit normal underwriting patterns and that are not commensurate with standard rates is normally refers to as:

A) Surplus lines
B) Commercial lines
C) Risk lines
D) Standardized lines

Question 32

The auditor should obtain a sufficient understanding by performing risk assessment procedures to:

A) evaluate the design of controls not relevant to audit of financial statement
B) determine whether design of controls have been implemented
C) Both A & B
D) Neither A nor B

Question 33

The organizations in which the ownership and control of operations are vested in the policyholders are known as:

A) Private entities
B) Public entities
C) Reciprocal entities
D) Mutual entities

Question 34

The combined ratio is the sum of it:

A) loss ratio
B) expense ratio
C) dividend ratio
D) All of the above

Question 35

Which risk assessment procedures are used to obtain an understanding of the entity and its environment, including its internal control?

A) Inquiries of management
B) Analytical procedures
C) Observation
D) All of the above

Question 36

Mutual entities, reciprocal or inter-insurance exchanges, public entity risk pools are all principal kinds of:

A) Property and expense insurance organizations
B) Feasibility and performance assurance organizations
C) Property and liability insurance organizations
D) Building and asset related organizations

Question 37

What provide for monetary compensation to third parties for failure by the insured to perform specifically covered acts with in a state period?

A) Worker compensation pools
B) Multiple perils
C) Surety bonds
D) Inter-insurance act

Question 38

The entity transferring the risk is called the ceding entity and the entity to which the risk is transferred is called the assuming entity.

Question 39

If claims have been reported to the insurer after the contract period, it may several months for the insurer to investigate and establish a case reserve for reported claims.

Question 40

When no tax deductions are allowed if risks are not transferred, whereas premiums paid to insurers are tax deducible, this leads to the formation of:

A) Portfolio
B) Claims
C) Captives
D) Fronting

Question 41

The securities repurchased have the same stated interest rate as, and maturities similar to, the securities sold and are generally priced to result in substantially the same yield is known as:

A) Yield-maintenance agreements
B) Variable-coupon agreements
C) Fixed-coupon agreement
D) None of the above

Question 42

Liabilities are recognized for known claims when sufficient information has been developed to indicate the involvement of a specific insurance policy.

Question 43

What uses valuation techniques to convert future amounts to a single present amount?

A) Risk approach
B) Market approach
C) Income approach
D) Cost approach

Question 44

Valuation technique should be used to measure fair value and is consistent with:

A) market, income and risk approach
B) market, performance and cost approach
C) security, income and risk approach
D) market, income and cost approach

Question 45

The maturity of which agreement is fixed by the contract and depends on the needs of the borrower and the willingness of the lender?

A) Fixed agreement
B) Standard agreement
C) Short-term agreement
D) Repurchase agreement

Question 46

Dollar rolls differ from regular repurchase agreements due to which of the following characteristics in the securities sold and repurchased.

A) they are represented by different certificates
B) they are collateralized by different but similar mortgage pools
C) they generally have different principal amounts
D) All of the above

Question 47

National Association of Insurance Commissioners stated that, has no effect on the valuation of securities for statutory accounting purposes, provided the amount of the collateral at least equals the required collateral.

A) Safety act
B) Investment security
C) Insurance track
D) Securities lending

Question 48

The amount that currently would be required to replace the service capacity of an asset is called:

A) Risk approach
B) Market approach
C) Income approach
D) Cost approach

Question 49

In what, securities involve in repos are not delivered on the settlement date of the agreement and the contract may be extended upon mutual agreement of the buyer-lender and seller-borrower.

A) Financial servicing
B) Price-cap
C) Rollover
D) Purchasing agreements

Question 50

The maximum error in the population that the auditor is willing to accept is called:

A) Risk of material misstatement
B) detection of risk
C) Both A & B
D) Neither A nor B

Question 51

The risk that the obligation will not be fulfilled and affects the value at which the liability is transferred is known as:

A) performance risk
B) nonperformance risk
C) hypothetical risk
D) relocation risk

Question 52

Short-term portfolios are:

A) Portfolios consisting of liabilities with maturities of one year to meet dollar needs.
B) Portfolios consisting of combined revenues of less than one year to meet liquidity needs.
C) Portfolios consisting of assets with maturities of less than one year to meet liquidity needs.
D) Portfolios consisting of expenses with maturities of less than or equal to one year to meet dollar needs.

Question 53

agreements may contain par cap provisions that could significantly alter the economics of the transactions.

A) Yield-maintenance
B) Price-cap
C) Fixed-coupon
D) Accounting

Question 54

The profitability of an insurance entity on a statutory basis is generally gauged by:

A) combined ratio and its operating ratio
B) single module ratio and its operating ratio
C) Net ratio
D) Gross ration and actual ratio

Question 55

As defined in Accounting Standards Codification, dollar purchase agreements are the agreements to sell and repurchase similar and identical securities.

Question 56

What technique uses a risk-adjusted discount rate and contractual, promised, or most likely cash flows?

A) Asset/Liability weighted
B) Fair value
C) Present value
D) Discount rate adjustment

Question 57

In a yield-maintenance agreement:

A) the securities repurchased may have a different stated interest rate from that of the securities sold and are generally priced to result in substantially the same yield.
B) the securities repurchased may have the same stated interest rate from that of the securities sold and are generally priced to result in substantially the same yield.
C) the securities repurchased may have a different stated interest rate from that of the securities sold and are generally priced to result in substantially the different yield.
D) the securities repurchased may have a same stated interest rate from that of the securities sold and are generally priced to result in substantially the different yield.

Question 58

Audit risk consists of:

A) Risk of material misstatement
B) detection of risk
C) Both A & B
D) Neither A nor B

Question 59

The estimated liability includes the amount of money that will be used for future payments of:

A) Reported claims to insurer
B) Claims related to insured events
C) Claim adjustment expenses
D) All of the above

Question 60

The difference between the purchase price and the repurchase price, or sale price, plus accrued interest on the security represents:

A) Accounting agreement
B) Investment income
C) Dollar price
D) Saving price

Question 61

Insurance entities usually write covered-call options because they consider the premium received for writing the options to be either:

A) an economic hedge between a decline in market price and security
B) a decrease in yield on the underlying risk security
C) Both A & B
D) Neither A nor B

Question 62

Inflation in Defense & Cost Containment (DCC) is evaluated separately and is estimated to occur at the same rate as the rate of inflation in the losses.

Question 63

The loss reserve estimate is a significant estimate in the financial statements of an uninsured entity.

Question 64

Which of the following is NOT the date that is the key to classify the chronology of the data?

A) policy date
B) accident date
C) reinsurance date
D) report date

Question 65

A basic premise underlying the application of is that it is reasonable to assume that plausible relationships among data exist and continue in the absence of known conditions to the contrary.

A) Independent estimates
B) Statistical claims
C) Analytical procedures
D) None of the above

Question 66

Extrapolation of historical dollars, projection of separate frequency data, use of expected loss ratios are all projection methods for:

A) Loss extrapolation projections
B) Loss reserve projections
C) Claim unit projections
D) Losses incurred projections

Question 67

With which standard, the auditor's substantive procedures must include reconciling the financial statements to the accounting records and should include examining material adjustments made during the course of preparing the financial statements.

A) Integrated Audit Financial Statement
B) Public Company Accounting Oversight Board
C) Audit of Financial Reporting over Internal Control
D) National Association of Insurance Commission

Question 68

The market in which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity for the asset or liability is known as:

A) Transfer market
B) Transport market
C) Principal market
D) Turn-around market

Question 69

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date is called:

A) face value
B) fair value
C) market value
D) transaction value

Question 70

Which of the following is NOT the way to make changes in variables that can be considered in the loss reserving process?

A) selection of loss projection
B) adjustment of historical loss data
C) separate calculation of effect of variables
D) segregation of new data

Question 71

The evaluation and subsequent purchase or sale of investments is based on the judgment of the entity's investment and finance committees.

Question 72

The date on which the contract becomes effective is known as _.

A) policy date
B) report date
C) reinsurance date
D) record date

Question 73

Average severities projection method uses various claim count and average cost per claim date on either a paid or insured basis.

Question 74

_______ is contractual right of recovery that entitles the insurer to any proceeds from the disposal of damaged property for which the claim has been made.

A) Claim adjustment
B) Claim recovery
C) Subrogation
D) Salvage

Question 75

What method assumes that an entity's historical experience relating to the timeliness of settlement will be predictive of future results?

A) Paid loss projection
B) Unpaid loss projection
C) Incurred loss projection
D) Loss ratio projection

Question 76

Which of the following is Correct?

A) the financial position of an entity with a 2-to-1 reserve-to-surplus ratio is less affected by variability in its loss reserves than is an entity operating at 4-to-1 ratio.
B) the financial position of an entity with a 2-to-1 reserve-to-surplus ratio is more affected by variability in its loss reserves than is an entity operating at 4-to-1 ratio.
C) the financial position of an entity with a 4-to-1 reserve-to-surplus ratio is less affected by variability in its loss reserves than is an entity operating at 2-to-1 ratio.
D) the financial position of an entity with a 4-to-1 reserve-to-surplus ratio is more affected by variability in its loss reserves than is an entity operating at 2-to-1 ratio.

Question 77

The estimated amount receivable from third parties from whom the insured may have the right to recover damages is known as:

A) reduction for subrogation
B) reduction for salvation
C) reduction for damages
D) reduction for paid losses

Question 78

What must be properly coded to meet the statutory reporting requirements of the annual statement and to provide statistics to support filling?

A) Claims data
B) Insurance act
C) Risk estimation
D) Claim settlement

Question 79

A lower net retention level typically would translate into a higher v\variability of reserves.

Question 80

What encompasses investment income and gains and losses, as well as custody of investment and recordkeeping?

A) Valuation data
B) Verification note
C) Transaction cycle
D) Investment evaluation