University of Tennessee

BIO 240

Quiz 3

1)A primary function of an insurance company actuary is to do which of the following?

1. • Adjust claims
   • Determine premium rates
   • Negtiate reinsurance treaties
   • Invest insurance cmpany assets
2. Insurers obtain data that can be used to determine rates from
   • Pricing pols
   • Insurance advisry rganizations
   • Banks
   • Reciprcal exchanges
3. Which of the following statements about insurance company underwriting policy is/are true?
   1. A company must establish an underwriting policy consistent with company objectives
   2. Underwriting policy is usually subjective and allows the underwriter considerable flexibility with respect to lines written and forms used
   3. A and b are both true statements
   4. Neither a nor b are true statements
4. The underwriting process begins with which of the following?
   1. The agent’s field underwriting
   2. The desk underwriter’s evaluation
   3. The loss control inspection report
   4. The actuary’s data analysis
5. Which of the following statements about claims settlement is true?
   1. Agents are never authorizes to settle claims
   2. Independent adjusters may be used in a geographic area where the volume of business is too low for an insurer to have its own adjusters
   3. A staff claims representative is hired by a policyholder to represent him or her if the policyholder does not agree with the claim settlement offered by the insurer

5. 4. A public adjuster is a salaried employee who works for one insurer
6. All of the following are reasons for a primary insurer to use reinsurance EXCEPT
   1. To increase underwriting capacity
   2. To protect against catastrophic losses
   3. To increase unearned premium reserve
   4. To stabilize profits
7. The unearned premium reserve of an insurer is
   1. An asset representing the investments made with premium income
   2. A liability representing the unearned portion of gross premiums on outstanding policies
   3. A liability representing claims that have been files, but not yet paid
   4. The portion of the insurer’s net worth belonging to policy owners
8. Huge Insurance company is a property insurer that is interests in protecting itself against cumulative losses that exceed $200 million during the year. This protection can best be obtained by using a(an)
   1. Quota Share reinsurance treaty
   2. Surplus-share reinsurance treaty
   3. Excess of loss reinsurance treaty
   4. Reinsurance pool
9. Which of the following statements about the investments of property and liability insurers is(are) true?
   1. Income from investments is important in offsetting any unfavorable underwriting

experience

9. 2. Because premium income is continually being received, the investment objective of liquidity is of little importance
   3. Both a and b
   4. Neither a nor b
10. Most insurance companies require their marketing representatives to submit an evaluation of the prospective insured. This is important source of underwriting information is called the…
    1. Application
    2. Agent’s report
    3. Inspection report
    4. Physical inspection
11. The price per unit of insurance is called the
    1. Premium
    2. Loss adjustment expense
    3. Loss reserve
    4. Rate
12. Delta Insurance Company has a surplus-share treaty with Eversafe Reinsurance, Delta has a retention limit of $200,000 and nine lines of insurance are ceded to Eversafe. Eversafe’s cession amount expressed in a dollar amount totals how much?

13. Delta Insurance Company insures a building for $1,600,000. Based on the scenario above, if the building suffers a loss of $800,000, how much will each insurer (Delta and Eversafe Reinsurance) pay toward the loss?
14. What are the four reasons for government regulation of insurance?
15. The basis for current state regulation of insurance is
    1. The McCarran-Ferguson Act
    2. Paul v. Virginia
    3. The Southeastern Underwriters Association case
    4. The national Association of Insurance Commissioners
16. All of the following statements about the methods of regulating insurance are true EXCEPT:
    1. All states have insurance laws that regulate the operations of insurers
    2. Insurers are totally exempt from regulation by federal agencies and laws
    3. The courts regulate insurance in many ways, including the interpretation of policy clauses and provisions
    4. State insurance commissioners through administrative ruling have considerable power over insurers doing business in their states
17. The policyholders’ surplus of an insured is defined as the difference between its
    1. Assets and liabilities
    2. Premium income and its expenses
    3. Reserves and liabilities
    4. Assets and non-admitted assets
18. A shortcoming of state regulation of insurance according to Congressional committees and General Accounting Office is that state regulation
    1. Leads to decentralized governmental power
    2. Provides opportunities for innovation
    3. Provides inadequate consumer protection
    4. Is more responsive to local needs
19. The National Association of Insurance Commissioners (NAIC) administers an “early warning system” to help ensure insurance company solvency. This system uses data provided in the annual statement to identify companies that may pose a solvency risk.

This early warning system is called

1. 1. The risk based capital requirements
   2. An insurance guaranty fund
   3. The insurance regulatory information system (IRIS)
   4. The assessment method

20. Factors that may result in more restrictive underwriting decisions include which of the following?
    1. Inadequate rates
    2. The unavailability of reinsurance at favorable terms
    3. Both A and B
    4. Neither A nor B
21. Which of the following is a function of the marketing department of an insurance company?
    1. To settle claims after a loss has been reported
    2. To determine the cost products the insurer sells
    3. To make final underwriting decisions
    4. To identify production goals
22. Functions of an insurance company’s legal department include which of the following?
    1. Lobbying for legislation favorable to the insurance industry
    2. Drafting policy provisions
    3. Both A and B
    4. Neither A nor B
23. Which of the following statements about state insurance guaranty funds is/are true?
    1. They limit the amount that policyholders can collect if an insurer becomes insolvent
    2. The are usually funded by general revenues of the states
    3. Both A and B
    4. Neither A or B
24. List the major areas where insurance companies are regulated:
    1. Formation and licensing of insurers
    2. Solvency regulation
    3. Rate regulation
    4. Policy forms
    5. Sales practices and consumer protection
    6. Taxation of insurers
25. The major reasons for insurer insolvency include which of the following?
    1. Inadequate pricing and loss reserves
    2. Rapid growth in inadequate surplus
    3. Both A and B
    4. Neither A or B