Question 1

Legislative supervision of insurers is generally concerned with preventing inadequate rates rather than with preventing excessive rates.

Accepted Answer

A) True 
 B)False

Question 2

A manual rate is a rate promulgated for a given class of risks rather than for an individual risk.

Accepted Answer

A) True 
 B)False

Question 3

If a firm has a good risk manager, there usually is no need to deal with an insurance agent who performs many of the same functions as a risk manager.

Accepted Answer

A) True 
 B)False

Question 4

Match the descriptions with their terms:
-When an insurer seeks insurance itself it is said to be purchasing _________________, and the insurer accepting the risk is known as the reinsurer.

Accepted Answer

A)   ceding company
B)   cession
C)   credibility
D)   excess line treaty or first surplus treaty
E)   excess-of-loss treatyF)  formal facultative agreementG)  severityH)  gross premiumI)  independent adjustersJ)  informal facultative agreementK)  inspection reportL)  loadingM)  loss ratioN)  manual, or class, ratingO)  merit, or individual,P)  policy writingQ)  pools or syndicatesR)  preferred risksS)  productionT)  pure premiumU)  quota share treatyV)  rate makingW)  rating bureau, or rate-making associationX)  reinsuranceY)  reinsurance pool or exchangeZ)  schedule rating[) K) and V)
\) N) and Z)

Question 5

Match the descriptions with their terms:
-In reinsurance, that portion of a risk kept by a primary company is the line, or retention, and the portion transferred to the reinsurer is the _________________.

Accepted Answer

A)   ceding company
B)   cession
C)   credibility
D)   excess line treaty or first surplus treaty
E)   excess-of-loss treatyF)  formal facultative agreementG)  severityH)  gross premiumI)  independent adjustersJ)  informal facultative agreementK)  inspection reportL)  loadingM)  loss ratioN)  manual, or class, ratingO)  merit, or individual,P)  policy writingQ)  pools or syndicatesR)  preferred risksS)  productionT)  pure premiumU)  quota share treatyV)  rate makingW)  rating bureau, or rate-making associationX)  reinsuranceY)  reinsurance pool or exchangeZ)  schedule rating[) E) and W)
\) A) and L)

Question 6

To an insurer, the advantages of reinsurance include all but one of the following:

Accepted Answer

A)   directly increasing profits,
B)   stabilizing profits,
C)   reducing unearned premium reserve requirements,
D)   enabling an insurer to retire from underwriting a given segment of its business,
E)   enlarging financial capacity to accept risk.F) A) and B)
G) D) and E)

Question 7

Agents help in the underwriting function of most insurers.

Accepted Answer

A) True 
 B)False

Question 8

In the loss ratio method of rate making, if the actual loss ratio is 50 percent, but the expected loss ratio is 60 percent, the future rate charged would be

Accepted Answer

A)   increased 10 percent,
B)   decreased 10 percent,
C)   increased 20 percent,
D)   decreased 16.66 percent,
E)   decreased 20 percent.F) B) and E)
G) A) and E)

Question 9

Match the descriptions with their terms:
-Independent associations formed by insurers to assist in underwriting are often called _________________ and normally specialize in certain areas.

Accepted Answer

A)   ceding company
B)   cession
C)   credibility
D)   excess line treaty or first surplus treaty
E)   excess-of-loss treatyF)  formal facultative agreementG)  severityH)  gross premiumI)  independent adjustersJ)  informal facultative agreementK)  inspection reportL)  loadingM)  loss ratioN)  manual, or class, ratingO)  merit, or individual,P)  policy writingQ)  pools or syndicatesR)  preferred risksS)  productionT)  pure premiumU)  quota share treatyV)  rate makingW)  rating bureau, or rate-making associationX)  reinsuranceY)  reinsurance pool or exchangeZ)  schedule rating[) R) and X)
\) A) and H)

Question 10

Credibility in rate making is used to make insured groups with few exposure units pay their full cost of poor loss experience.

Accepted Answer

A) True 
 B)False

Question 11

Experience rating looks to the past lost experience of an insured, but affects the rate to be charged in the future.

Accepted Answer

A) True 
 B)False

Question 12

Match the descriptions with their terms:
-The total premium charged for coverage is the _________________.

Accepted Answer

A)   ceding company
B)   cession
C)   credibility
D)   excess line treaty or first surplus treaty
E)   excess-of-loss treatyF)  formal facultative agreementG)  severityH)  gross premiumI)  independent adjustersJ)  informal facultative agreementK)  inspection reportL)  loadingM)  loss ratioN)  manual, or class, ratingO)  merit, or individual,P)  policy writingQ)  pools or syndicatesR)  preferred risksS)  productionT)  pure premiumU)  quota share treatyV)  rate makingW)  rating bureau, or rate-making associationX)  reinsuranceY)  reinsurance pool or exchangeZ)  schedule rating[) B) and P)
\) N) and Q)

Question 13

Most assets of insurance companies are invested in real estate.

Accepted Answer

A) True 
 B)False

Question 14

Interest earned by insurers on premiums collected in advance is not considered in insurance rate making.

Accepted Answer

A) True 
 B)False

Question 15

Match the descriptions with their terms:
-The function in insurance most closely related to the sales function is known as _________________.

Accepted Answer

A)   ceding company
B)   cession
C)   credibility
D)   excess line treaty or first surplus treaty
E)   excess-of-loss treatyF)  formal facultative agreementG)  severityH)  gross premiumI)  independent adjustersJ)  informal facultative agreementK)  inspection reportL)  loadingM)  loss ratioN)  manual, or class, ratingO)  merit, or individual,P)  policy writingQ)  pools or syndicatesR)  preferred risksS)  productionT)  pure premiumU)  quota share treatyV)  rate makingW)  rating bureau, or rate-making associationX)  reinsuranceY)  reinsurance pool or exchangeZ)  schedule rating[) F) and O)
\) F) and Q)

Question 16

A rate-making method designed to adjust a premium to reflect the actual loss experience of an insured in a given time period is known as

Accepted Answer

A)   retrospective rating,
B)   experience rating,
C)   manual, or class, rating,
D)   schedule rating,
E)   preferred risk rating.F) None of the above
G) A) and B)

Question 17

The conflict between production and underwriting is more apparent than real.

Accepted Answer

A) True 
 B)False

Question 18

Match the descriptions with their terms:
-The function in insurance in which an insurance contract is prepared and issued is called _________________.

Accepted Answer

A)   ceding company
B)   cession
C)   credibility
D)   excess line treaty or first surplus treaty
E)   excess-of-loss treatyF)  formal facultative agreementG)  severityH)  gross premiumI)  independent adjustersJ)  informal facultative agreementK)  inspection reportL)  loadingM)  loss ratioN)  manual, or class, ratingO)  merit, or individual,P)  policy writingQ)  pools or syndicatesR)  preferred risksS)  productionT)  pure premiumU)  quota share treatyV)  rate makingW)  rating bureau, or rate-making associationX)  reinsuranceY)  reinsurance pool or exchangeZ)  schedule rating[) N) and U)
\) C) and J)

Question 19

Match the descriptions with their terms:
-When several insurers combine to accept reinsurance, this is called a/an _________________.

Accepted Answer

A)   ceding company
B)   cession
C)   credibility
D)   excess line treaty or first surplus treaty
E)   excess-of-loss treatyF)  formal facultative agreementG)  severityH)  gross premiumI)  independent adjustersJ)  informal facultative agreementK)  inspection reportL)  loadingM)  loss ratioN)  manual, or class, ratingO)  merit, or individual,P)  policy writingQ)  pools or syndicatesR)  preferred risksS)  productionT)  pure premiumU)  quota share treatyV)  rate makingW)  rating bureau, or rate-making associationX)  reinsuranceY)  reinsurance pool or exchangeZ)  schedule rating[) K) and M)
\) B) and U)

Question 20

Supervision of advertising programs of insurers is most likely to be under

Accepted Answer

A)   underwriting,
B)   rate making,
C)   production,
D)   claims management,
E)   investment and finance.F) C) and D)
G) B) and C)

Exam 23: Functions and Organization of Insurers

Credibility in rate making is used to make insured groups with few exposure units pay their full cost of poor loss experience.

Correct AnswerverifiedShow Answer

Legislative supervision of insurers is generally concerned with preventing inadequate rates rather than with preventing excessive rates.

Correct AnswerverifiedShow Answer

In the loss ratio method of rate making, if the actual loss ratio is 50 percent, but the expected loss ratio is 60 percent, the future rate charged would be

Correct AnswerverifiedShow Answer

Supervision of advertising programs of insurers is most likely to be under

Correct AnswerverifiedShow Answer

Most assets of insurance companies are invested in real estate.

Correct AnswerverifiedShow Answer

Match the descriptions with their terms: -When several insurers combine to accept reinsurance, this is called a/an _________________.

Correct AnswerverifiedShow Answer

Match the descriptions with their terms: -The function in insurance in which an insurance contract is prepared and issued is called _________________.

Correct AnswerverifiedShow Answer

Match the descriptions with their terms: -The total premium charged for coverage is the _________________.

Correct AnswerverifiedShow Answer

Match the descriptions with their terms: -In reinsurance, that portion of a risk kept by a primary company is the line, or retention, and the portion transferred to the reinsurer is the _________________.

Correct AnswerverifiedShow Answer

To an insurer, the advantages of reinsurance include all but one of the following:

Correct AnswerverifiedShow Answer

If a firm has a good risk manager, there usually is no need to deal with an insurance agent who performs many of the same functions as a risk manager.

Correct AnswerverifiedShow Answer

A manual rate is a rate promulgated for a given class of risks rather than for an individual risk.

Correct AnswerverifiedShow Answer

Match the descriptions with their terms: -Independent associations formed by insurers to assist in underwriting are often called _________________ and normally specialize in certain areas.

Correct AnswerverifiedShow Answer

Match the descriptions with their terms: -When an insurer seeks insurance itself it is said to be purchasing _________________, and the insurer accepting the risk is known as the reinsurer.

Correct AnswerverifiedShow Answer

Match the descriptions with their terms: -The function in insurance most closely related to the sales function is known as _________________.

Correct AnswerverifiedShow Answer

The conflict between production and underwriting is more apparent than real.

Correct AnswerverifiedShow Answer

A rate-making method designed to adjust a premium to reflect the actual loss experience of an insured in a given time period is known as

Correct AnswerverifiedShow Answer

Agents help in the underwriting function of most insurers.

Correct AnswerverifiedShow Answer

Interest earned by insurers on premiums collected in advance is not considered in insurance rate making.

Correct AnswerverifiedShow Answer

Experience rating looks to the past lost experience of an insured, but affects the rate to be charged in the future.

Correct AnswerverifiedShow Answer

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