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FIN 326 - Chapter 15 Smartbook
Terms in this set (68)
Insurance services are classified into two major groups: ______ and ______.
The increasing degree of concentration in fewer, larger firms in the life insurance industry is the result of recent
mergers and acquisitions.
In addition to selling life insurance, life insurance companies also (pick three)
provide accident and health insurance.
manage pension plans.
sell annuity contracts.
The problem faced by life insurance companies by which customers who apply for insurance are those who are more likely to need it is called
Of the life insurance policies in force in the U.S, _______ is by far the most common, followed by ________.
ordinary life; group life
Life insurance provides protection for three major event types, which are untimely
The type of ordinary life insurance that allows the insured to invest fixed premium payments in mutual funds of stocks, bonds and money market securities, is
In 2018 the U.S. had approximately ______ life insurance companies in business compared to _____ companies in 1988.
Life insurance companies pool the risk of individual customers and thereby diversifies away some of the _________, making the cost of their services lower than what any individual could achieve by saving funds on his/her own.
Group life insurance in which the employer bears the entire cost of the insurance is called
Because of ________, an insurance company's pool of customers may be more prone to health problems than the overall population, forcing the insurance company to base its premiums on a pool that matches the customer's health characteristics rather than the general population.
Life insurance which protects lenders against a borrower's death prior to the repayment of a debt contract is called
The four basic classes of life insurance are
Certain life insurance policies that entitle the beneficiary to the receipt of a lump sum at maturity could be converted into
The type of ordinary life insurance that combines a term element with a savings element, paying out to beneficiaries if the insured dies within the endowment period, and paying out to the insured if they live to the endowment date, is
In 2018, life insurance companies managed about _______ percent of the total assets in all private pensions plans.
Accident and health insurers face loss exposures that are similar to those faced by
Group life insurance in which both the employer and covered employee share the cost of the employee's coverage is called
They types of assets on a life insurance company's balance sheet exposes it to ______ risk and ______ risk.
credit; interest rate
Credit life insurance represents less than _______ percent of the total market.
The largest liability on the life insurance company's balance sheet is
net policy reserves.
An annuity liquidates a lump sum fund by making payments to the beneficiary
at regular intervals over time.
A type of pension plan offered by insurance companies in which the insurer guarantees not only the rate of interest credited to the plan over a some period, but also the annuity rates on beneficiaries contracts is a
guaranteed investment contract.
During the financial crisis, the heavy losses suffered by several large, important life insurance companies caused the Treasury Department to extend bailout funds to them under the
Troubled Asset Relief Program. (TARP)
In accident and health insurance, the major activity line is ______ insurance.
State insurance commissions supervise and examine insurance companies using a coordinated examination system developed by the
National Association of Insurance Commissioners.
In recent years, the financial assets in which life insurance companies invest the most funds are ______ followed by ______.
The federal agency responsible for identifying any financial institution, including insurance companies, that presents a systemic risk to the economy and subjecting them to greater regulation is the
Financial Stability Oversight Council.
The second largest liability on the life insurance company's balance sheet is
separate account business.
Interest earned on annuities is ________, with taxes paid only when the annuity payments are made to the beneficiary.
Life insurance policyholders' invested funds are guaranteed by the
state-sponsored guarantee funds.
True or false: Life insurance companies' large investments in financial securities caused them to suffer heavy losses during the financial crisis.
In 2018, the top property-casualty firm was ______ and the second ranked insurer was ______.
State Farm; Berkshire Hathaway
The act of Congress that confirmed the primacy of state over federal regulation of insurance companies was the
The property-casualty insurance line that protects against multiple perils of damage to a personal dwelling and personal property, as well as liability coverage for personal injury to others, is
homeowners multiple peril.
As a result of the difficulties experienced by the insurance industry during the financial crisis, Congress has established the ________ to monitor the insurance industry, identify risks, deal with international matters and monitor the extent to which underserved communities have access to affordable insurance products.
Federal Insurance Office (FIO)
Unlike the FDIC's Depositor Insurance Fund, the state-sponsored funds are ________ and receive contributions into the fund only when ________.
not permanent; an insurance company has failed
The loss reserves on the property-casualty insurer's balance sheet are established to address the insurer's underwriting risk, which may result from (pick three)
unexpected increases in loss rates.
unexpected decreases in investment returns.
unexpected increases in expenses.
The property-casualty insurance industry is less than ______ the size of the life insurance industry by asset size, but it is vital to the economic system and the management of risk.
The key feature of claims loss risk is the actuarial ______ relative to premiums earned.
predictability of losses
The property-casualty insurance line that provides protection against losses resulting from legal liability due to the ownership or use of a vehicle, and theft or damage to vehicles, is
auto liability and physical damage.
Loss rates are more predictable on ________ insurance lines than on ________ insurance lines.
low-severity, high-frequency; high-severity, low-frequency
Among the property-casualty insurance company's liabilities, the expected administrative and related costs associated with sending an adjuster to settle a claim is called the
loss adjustment expense.
With a long-tail loss event, the delay in filing of a claim often occurs because there is a delay between the insured event and the
recognition of its detrimental consequences.
The largest liability component on the balance sheet of the property-casualty insurer is the
The maximum levels of losses are more predictable for ______ insurance lines than for ______ insurance lines.
Inflation may ______ the cost of providing property loss benefits and may ______ the value of the insurer's investments in financial assets.
The expected loss potential of a property-casualty insurance line can be estimated as the ______ times the ______.
frequency of loss; severity of loss
A property-casualty insurer may use ______ to insure itself against unforeseen or extraordinary losses.
A liability insurance line is said to experience ______ loss when the insured event occurs within a coverage period but a claim is not filed until many years later.
A life insurance company's ______ are funds invested and held separately from the insurance company's other assets. They may include premiums collected on variable life insurance policies and invested in financial securities at the direction of policyholders.
The ratio of actual losses incurred on a specify policy line to premiums earned is called the
The two major sources of expense risk to P&C insurers are (pick two)
loss adjustment expenses.
commissions and other expenses.
Liability insurance lines are subject to ______ which may increase the insurer's cost of providing benefits faster than the increase due to the underlying rate of inflation.
A common measure of the overall underwriting profitability of a line is the
An alternative to managing risk on a P&C insurer's balance sheet is to purchase
When the combined ratio is ______ 100 percent, overall profitability can be ensured only by a sufficient investment return on premiums earned.
P&C insurers consider that the period 1985-2016 was the trough of a(n)
A loss ratio of ______ 100 percent means that premiums earned were sufficient to cover losses incurred on that line.
Like life insurance companies, property-casualty insurers are regulated by the
The costs surrounding the P&C loss settlement process are called the
loss adjustment expenses.
Of the top 10 insurance companies in the world by total revenue, ______ are in the United States and ______ are in China.
Adding the ratio of dividends paid to premiums earned to the combined ratio produces the
combined ratio after dividends.
When the operating ratio is ______ 100 percent, a P&C insurer is profitable.
The period 1985-2016 was characterized by a number of catastrophes of historically
Like life insurance companies, property-casualty policyholders receive some protection from the
state guarantee funds.
The country in which the largest dollar value of total premiums were written in 2018 was ______ followed by ______.
the United States; China
The P&C insurer's profitability measure that is calculated by subtracting the investment yield from the combined ratio after dividends is called the
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