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Broker is someone who legally represents the insured even though he…

Broker is someone who legally represents the insured even though he or she receives a commission from the insurer.

Group of answer choices

True

 

False

 

 

Flag question: Question 2Question 21 pts

 

A reciprocal exchange (also called an interinsurance exchange) can be defined as an unincorporated organization in which insurance is exchanged among the members (called subscribers).

Group of answer choices

True

 

False

 

 

Flag question: Question 3Question 31 pts

 

Independent property and casualty agents are independent contractors who represent several insurers and sell primarily property and casualty insurance.

Group of answer choices

True

 

False

 

 

Flag question: Question 4Question 41 pts

 

Insurers can enter new areas of insurance more easily, such as a life insurer acquiring a property and casualty insurer, this considered to be an advantage of mutual holding company.

Group of answer choices

True

 

False

 

 

Flag question: Question 5Question 51 pts

 

Surplus lines brokers play an important role in the property and casualty insurance market because only they (and insurance agent) can deal with a class of companies called “surplus lines” or “non-admitted” insurers.

Group of answer choices

True

 

False

 

 

Flag question: Question 6Question 61 pts

 

A property and casualty agent has the power to “bind” the insurer immediately with respect to certain types of coverage.

Group of answer choices

True

 

False

 

 

Flag question: Question 7Question 71 pts

 

Surplus broker has authority to bind an insurer.

Group of answer choices

True

 

False

 

 

Flag question: Question 8Question 81 pts

 

MGAs deal with only admitted insurers but not with non-admitted insurers.

Group of answer choices

True

 

False

 

 

Flag question: Question 9Question 91 pts

 

Personal selling distribution systems, which are systems in which commissioned agents solicit and sell life insurance products to prospective insureds.

Group of answer choices

True

 

False

 

 

Flag question: Question 10Question 101 pts

 

Surplus lines insurers are not licensed in the state where the loss exposure is located, and they exist to assume risks that licensed companies decline to insure or will only insure at a very high rate, with many exclusions or with a very high deductible.

Group of answer choices

True

 

False

 

 

Flag question: Question 11Question 111 pts

 

One of the demutualization critics is that at the time of demutualization stock is issued to current shareholders and management. It is unfair to enrich them with surplus accumulated from contributions of previous generations of policyholders.

Group of answer choices

True

 

False

 

 

Flag question: Question 12Question 121 pts

 

Many brokers are also licensed as agents, so that they have the authority to bind their companies when acting as agents.

Group of answer choices

True

 

False

 

 

Flag question: Question 13Question 131 pts

 

It is easier to raise new capital for mutual insurer in comparison to stock insurer.

Group of answer choices

True

 

False

 

 

Flag question: Question 14Question 141 pts

 

Attorney-in-fact is personally liable for the payment of claims and is not the insurer.

Group of answer choices

True

 

False

 

 

Flag question: Question 15Question 151 pts

 

Career agents are part-time agents who usually represent one insurer and are paid on a commission basis.

Group of answer choices

True

 

False

 

 

Flag question: Question 16Question 161 pts

 

Many property and casualty insurers use more than one distribution system to buy insurance. These systems are referred to as multiple distribution systems.

Group of answer choices

True

 

False

 

 

Flag question: Question 17Question 171 pts

 

A managing general agent (MGA) is a specialized type of “wholesale” producer that, unlike “retail” producers, is vested with underwriting authority from an insurer.

Group of answer choices

True

 

False

 

 

Flag question: Question 18Question 181 pts

 

The direct response system is a management system by which life and health insurance products are sold directly to consumers without a face-to-face meeting with an agent.

Group of answer choices

True

 

False

 

 

Flag question: Question 19Question 191 pts

 

Lloyd’s underwrites eight lines of insurance: casualty, property, marine, energy, cyber, motor, aviation, and reinsurance.

Group of answer choices

True

 

False

 

 

Flag question: Question 20Question 201 pts

 

The multiple line exclusive agency system is a system in which agents who buy primarily property and casualty insurance also sell individual life and health insurance products.

Group of answer choices

True

 

False

 

 

Flag question: Question 21Question 211 pts

 

There are only two possible decisions regarding insurance settlement payment: (1) The claim can be paid and submitted. (2) The claim can be denied.

Group of answer choices

True

 

False

 

 

Flag question: Question 22Question 221 pts

 

To qualify as a property and casualty insurance actuary, an applicant must pass one examination administered by the Casualty Actuarial Society.

Group of answer choices

True

 

False

 

 

Flag question: Question 23Question 231 pts

 

Important sources of information for underwriting include the following: Application, Agent’s report, Inspection report, Physical inspection, Moral examination, Physical examination.

Group of answer choices

True

 

False

 

 

Flag question: Question 24Question 241 pts

 

Underwriting refers to the process of selecting, ­classifying, and pricing applicants for insurance.

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True

 

False

 

 

Flag question: Question 25Question 251 pts

 

A proof of loss is a sworn statement by the insured that substantiates the loss.

Group of answer choices

True

 

False

 

 

Flag question: Question 26Question 261 pts

 

Under a quota-share treaty, the ceding company and reinsurer agree to share premiums and losses based on some proportion. The ceding company’s retention is stated as a percentage rather than as a dollar amount.

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True

 

False

 

 

Flag question: Question 27Question 271 pts

 

An exposure unit is the unit of measurement used in insurance pricing, which varies by line of insurance.

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True

 

False

 

 

Flag question: Question 28Question 281 pts

 

Under the pro rata method, the ceding company and reinsurer agree to share losses and premiums based on some proportion.

Group of answer choices

True

 

False

 

 

Flag question: Question 29Question 291 pts

 

The amount of insurance ceded to the reinsurer is known as the cession.

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True

 

False

 

 

Flag question: Question 30Question 301 pts

 

As part of the moral exam, a life insurer may request a report from MIB Group, Inc.® (formerly the Medical Information Bureau).

Group of answer choices

True

 

False

 

 

Flag question: Question 31Question 311 pts

 

The unearned premium reserve is a liability item on the insurer’s balance sheet that represents the unearned portion of gross premiums on all outstanding policies at the time of valuation.

Group of answer choices

True

 

False

 

 

Flag question: Question 32Question 321 pts

 

Initial underwriting starts with the agent in the field; often, this first step is called field underwriting.

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True

 

False

 

 

Flag question: Question 33Question 331 pts

 

One group of policyholders should unduly subsidize another group, according to third underwriting principle.

Group of answer choices

True

 

False

 

 

Flag question: Question 34Question 341 pts

 

Before a crime insurance policy is issued, the applicant may be required to place iron bars on windows or install an approved burglar alarm system; this is example of ‘Accept the application subject to certain restrictions or modifications’ rate making decision.

Group of answer choices

True

 

False

 

 

Flag question: Question 35Question 351 pts

 

Loss control services include advice on alarm systems, automatic sprinkler systems, fire prevention, occupational safety and health, prevention of boiler explosions, and other loss-prevention activities.

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True

 

False

 

 

Flag question: Question 36Question 361 pts

 

Before the underwriter evaluates all information, an underwriting decision must be made.

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True

 

False

 

 

Flag question: Question 37Question 371 pts

 

Because policyholders’ surplus is the difference between assets and liabilities (that is, net worth), the faster new premiums rise, the faster surplus is drained.

Group of answer choices

True

 

False

 

 

Flag question: Question 38Question 381 pts

 

The Chartered Life Underwriter (CLU)® and Chartered Financial Consultant (ChFC)® are examinations-based professional designation programs in life and health insurance established by the American College of Financial Services®, which also offers other designations for professionals who are working in the financial services industry.

Group of answer choices

True

 

False

 

 

Flag question: Question 39Question 391 pts

 

In life insurance, a physical exam may be required, especially for higher policy limits, to determine the applicant’s physical characteristics such as overall health.

Group of answer choices

True

 

False

 

 

Flag question: Question 40Question 401 pts

 

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

Group of answer choices

True

 

False

 

 

Flag question: Question 41Question 411 pts

 

A balance sheet is a summary of what a company owns (assets), what it owes (liabilities), and the sum of total assets and total liabilities (owners’ equity).

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True

 

False

 

 

Flag question: Question 42Question 421 pts

 

A loss reserve is the estimated cost of settling claims for losses that will occur in future but that have not been paid as of the valuation date.

Group of answer choices

True

 

False

 

 

Flag question: Question 43Question 431 pts

 

The loss reserve is an estimated amount for (1) claims reported and adjusted but not yet paid, (2) claims reported and filed but not yet adjusted, and (3) claims for losses incurred but not yet reported to the company.

Group of answer choices

True

 

False

 

 

Flag question: Question 44Question 441 pts

 

Life insurance companies charge interest on life insurance policy loans, and this interest-bearing asset is called “contract loans” or “policy loans” on a life insurer’s statement of cashflow.

Group of answer choices

True

 

False

 

 

Flag question: Question 45Question 451 pts

 

Merit rating is based on the assumption that future losses to insureds will be determined largely by the same set of factors.

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True

 

False

 

 

Flag question: Question 46Question 461 pts

 

A life insurer’s net gain from operations (also called net income) equals total revenues plus total expenses, policyholder dividends, and federal income taxes.

Group of answer choices

True

 

False

 

 

Flag question: Question 47Question 471 pts

 

Given the long-term nature of the life insurance industry, conservative long-term investments, and the lower risk of catastrophic losses in the life insurance industry, policyholders’ surplus is less volatile in the life insurance industry than in the property and casualty insurance industry.

Group of answer choices

True

 

False

 

 

Flag question: Question 48Question 481 pts

 

Loss reserves in property and casualty insurance can be classified as case reserves, reserves based on the profit ratio method, and reserves for incurred-but-not-reported claims.

Group of answer choices

True

 

False

 

 

Flag question: Question 49Question 491 pts

 

Life insurance actuaries use a mortality table or individual company experience to determine the probability of death at each attained age.

Group of answer choices

True

 

False

 

 

Flag question: Question 50Question 501 pts

 

The expense ratio is equal to the company’s underwriting expenses divided by written premiums.

Group of answer choices

True

 

False

 

 

Flag question: Question 51Question 511 pts

 

Case reserves are loss reserves that are established for each individual claim when it is reported.

Group of answer choices

True

 

False

 

 

Flag question: Question 52Question 521 pts

 

Under an experience rating plan, each exposure is individually rated. A basis rate is determined for each exposure, which is then modified by debits or credits for undesirable or desirable physical features.

Group of answer choices

True

 

False

 

 

Flag question: Question 53Question 531 pts

 

Policy reserves are the major liability item of life insurers.

Group of answer choices

True

 

False

 

 

Flag question: Question 54Question 541 pts

 

The gross rate consists of the pure premium and a loading element.

Group of answer choices

True

 

False

 

 

Flag question: Question 55Question 551 pts

 

Class rating means that exposures with similar characteristics are placed in the same ­underwriting class, and each is charged the same rate.

Group of answer choices

True

 

False

 

 

Flag question: Question 56Question 561 pts

 

Under a retrospective rating plan, the insured’s loss experience during the current policy period determines the actual premium paid for next period.

Group of answer choices

True

 

False

 

 

Flag question: Question 57Question 571 pts

 

Two important financial statements are the balance sheet and the income and expense statement.

Group of answer choices

True

 

False

 

 

Flag question: Question 58Question 581 pts

 

An insurer is required by law to place the entire gross premium in the unearned premium reserve when the policy is first written, and to place renewal premiums in the same reserve.

Group of answer choices

True

 

False

 

 

Flag question: Question 59Question 591 pts

 

Under the annual pro rata method, it is assumed that the policies are written uniformly throughout the year.

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True

 

False

 

 

Flag question: Question 60Question 601 pts

 

Property and casualty insurance companies place greater emphasis on liquidity, holding larger relative positions in cash and marketable securities.

Group of answer choices

True

 

False

 

 

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