AIAF 114 - Chapter 4 Practice Exam Questions With Correct Answers!!

Some premium payment plans may include additional payments that exceed the amount required if the premium was paid in full at the policy inception. Such additional payments that are a function of the amount of premium payment are treated under U.S. regulatory accounting as - Answer-Finance charges. Under U.S. regulatory accounting, the liability for extended reporting endorsements covering a definite period into the future is recorded as - Answer-Unearned premium reserves Retrospective premium adjustments - Answer-Can continue for many years after the original policy term has expired. Deficiency in the loss reserves - Answer-Does not necessarily indicate a deficiency in the unearned premium reserve The asset-liability approach may be used as a new accounting standard for insurance contracts, rather than the deferral-matching approach. Under the asset-liability approach, revenue is recognized - Answer-When the insurer gains control of the asset resulting from the revenue Which one of the following might be a reason for a regulatory accounting system to gross up the reported premiums by the amount of credits for large deductible arrangements? - Answer-To avoid a negative impact on smaller insureds under a premium assessment system Under a deferral-matching approach, the portion of written premium that relates to future coverage periods is considered - Answer-An unearned premium liability. Which one of the following best describes loss reserves? - Answer-The estimate of the ultimate cost of incurred but unpaid losses Which one of the following statements is true regarding loss reserves and the unearned premium reserve? - Answer-Loss reserves and the unearned premium reserve cover different portions of claim obligations with no overlap.Under a deferral-matching approach, the written premium that results from the prospective addition of another driver to an automobile policy would - Answer-Initially affect only unearned premium Which one of the following is true with regard to the asset-liability approach as an accounting standard for insurance contracts? - Answer-The asset-liability approach does not use the earned premium concept and affects the income statement. Regarding premium recognition, which one of the following treatments might be used for a continuous policy to account for written premium? - Answer-Annual premium payments viewed as a series of annual policies with only the current year premium treated as "written" An insurer sold a commercial policy to Twinkle Lighting Company on March 1, 2010 with an effective date of May 1, 2010. Twinkle Lighting did not submit the premium of $240 until July 1, 2010. Under the deferral-matching approach to premium accounting, the unearned premium as of June 30, 2010 would be - Answer-$200 Based on accounting rules, which one of the following earning approaches may be allowed, as an exception, when the effect is not material to the financial statements? - Answer-Pro rata Under which one of the following circumstances might an actuary be required to calculate a non-pro rata earning pattern for the premium? - Answer-For policies in which the insurance risk is not evenly spread throughout the policy period