Question 1

Special surplus funds are portions of surplus allocated or appropriated for a specific purpose. Special surplus funds usually are allocated voluntarily but also may be required by an insurance regulator. Which one the following is NOT an example of special funds:

Accepted Answer

Guarantee Loan is not an example of a special surplus fund; it is a type of financial product or service, not a reserve or fund allocated for a specific purpose.

Question 2

To realize the effect on the "bottom line," or the net gain from operations, from various transactions, one must consider the amount of any liabilities that are released because of the transaction. Assume a death claim entry as follows: Death proceeds-ordinary $10,000 Dividends on deposit disbursed 1,000 Cash $11,000 On first appearance, one might think that this will cause the net gain from operations to be $11,000 lower. However, if the policy has a reserve of $3,000, the effect on the net gain is only , because the reserve liability of $3,000 and the dividend liability of $1,000 will no longer be shown on the balance sheet

Accepted Answer

The net gain from operations is reduced by $7,000 because the liabilities of $3,000 (reserve) and $1,000 (dividends) are released, offsetting the $11,000 cash outflow.

Question 3

A stock life insurance company writing both participating and nonparticipating business must follow special accounting procedures under the laws of certain jurisdictions. The purpose of these special accounting procedures is to provide for:

Accepted Answer

These special accounting procedures are intended to ensure that profits from participating and nonparticipating business are appropriately separated and determined.

Question 4

The value of the capital stock shown in the stock life insurance company's statutory basis balance sheet equals the par value per share multiplied by the number of issued shares. In the case of no-par stock:

Accepted Answer

In the case of no-par stock, the stated value per share is used to determine the value of the capital stock on the balance sheet.

Question 5

Supplementary contracts may be issued by an insurer upon the termination of a life insurance contract that has been terminated by death, maturity, or surrender. The policyholder, if living or the beneficiary elects the option under which the proceeds are paid. The payment options usually available are:

Accepted Answer

All the options A, B, and C are common payment options available for the proceeds of a life insurance policy upon termination.

Question 6

The difference between the carrying value of the parent's investment in subsidiary and the amount received is treated as a gain or loss in the:

Accepted Answer

The gain or loss from the difference between the carrying value of the parent's investment in the subsidiary and the amount received is recognized in the parent's income statement.

Question 7

It usually is acceptable to use the subsidiary's statements if the difference in fiscal periods is:

Accepted Answer

It is generally acceptable to use the subsidiary's financial statements if the difference in fiscal periods is not more than 3 months, as this is a common practice in financial reporting to ensure timely consolidation.

Question 8

An annuity contract provides:

Accepted Answer

The answer of An annuity contract provides:
...

Question 9

When dividends are left to accumulate at interest, the insurer typically sends a notice to each policyholder showing the amount accumulated at the end of the policy year. The notice also shows the dividend credited and interest earned for that policy year. The dividend left at interest may later be received by or credited to the policyholder in several ways. Which of the following is/are out of those ways?

Accepted Answer

The answer of When dividends are left to accumulate at...

Question 10

Which of the following is NOT included when initial acquisition of Subsidiary, Controlled and Affiliated Entities (SCA) is recorded as the sum of?

Accepted Answer

The fair value of any expenses is not included in the initial acquisition cost of SCA entities. Acquisition costs typically include cash payments, the fair value of other assets distributed, and direct costs of the acquisition.

Question 11

It refers to items such as interest paid on proceeds from the date due to the date actually disbursed, and to interest on premium deposit funds. These interest items are reflected by the increase in reserves or liability, from one year to the next. What is it?

Accepted Answer

Interest on policy and contract funds both involve interest items that affect reserves or liabilities, as described in the question.

Question 12

A liability for premiums paid in advance can also arise when insurers allow policyholders to pay several years' premiums at one time. Since the insurer has the use of policyholder funds that are not yet due, it is customary for the insurer to:

Accepted Answer

Insurers typically discount the value of premiums paid in advance to reflect the time value of money, accepting a lesser amount in cash upfront.

Question 13

What represent the ownership interests in the net assets of the subsidiary held by persons outside the controlling entities' structure?

Accepted Answer

Minority interests represent the ownership interests in the net assets of a subsidiary held by persons outside the controlling entity's structure.

Question 14

In case of supplementary contracts, the amount of each payment is computed on the basis of the assumed (or guaranteed) interest rate and the number and frequency of payments selected. For example:

Accepted Answer

The higher the assumed interest rate, the larger the amount of each payment because the interest contributes more to the total payment amount.

Question 15

________ are contracts with the insurer which provide for periodic payments over a specified period or in specified amounts. In most respects they are administered and accounted for much like supplementary contracts without life contingencies since there are no mortality or morbidity considerations that affect the amount to be paid.

Accepted Answer

Annuities certain are contracts that provide periodic payments for a specified period or in specified amounts, without mortality or morbidity considerations affecting the payments.

Question 16

Experience refund provisions of group insurance contracts are most often concerned with the manner of distributing any profits between the insurer and the insured group. The agreements usually contain provisions specifying how losses will affect the profit allocations for the insured group. In such situation:

Accepted Answer

Losses may or may not be charged back, and if charged back, losses for each group are usually accumulated for a certain number of years.

Question 17

To meet informational demands, internal management reporting will entail alternate views of the organization's financial performance. These areas, or views, are including all of the following EXCEPT:

Accepted Answer

The question asks for the option that is NOT included in the alternate views of the organization's financial performance. Options A, B, and C are all valid views, so the correct answer is D, indicating that none of the options are excluded.

Question 18

Structured settlements are agreements characterized by the periodic payment of fixed amounts to a claimant in connection with the settlement of a legal claim. Such payments may last for the lifetime of the payee or they may be for a particular period of time, depending upon the terms of the settlement. The party responsible for making structured settlement payments may make payments:

Accepted Answer

The party responsible for making structured settlement payments can make payments directly to a claimant or through other arrangements, so any of these options are possible.

Question 19

A logical first step toward understanding of a life and health insurance company and the related financial reporting considerations is to review the manner in which different interested parties view the end result of the accounting process for capital and surplus transactions, for example, the adequacy of the resulting balances. Key interested parties include: • Policyholders • Agents • Stockholders • Insurance regulators • Rating agencies • Management

Accepted Answer

The capital and surplus accounts are crucial for understanding the financial health and stability of an insurance company, which is of interest to all the listed parties.

Question 20

Insurers issuing participating policies sometimes incur dividends which have been earned but which have not been disbursed or otherwise credited as of the financial statement date. Such dividends represent a due and unpaid liability amount. Reasons why dividends may be due and unpaid include all of the following EXCEPT:

Accepted Answer

All premiums paid to the anniversary date do not result in dividends being due and unpaid. This option does not relate to the timing or processing issues that cause dividends to be due and unpaid.

Exam 1: Accredited Financial Examiner