AINS 21 EXAM QUESTIONS WITH COMPLETE
SOLUTIONS
A company interested in improving cash flow should consider
meeting its insurance needs through which one of the following
types of insurance organizations? Correct Answers Correct.
With a captive, instead of paying premiums to an unrelated
insurer, a company can invest its funds until they are needed for
claims.
A decrease in incurred losses will generally cause a decrease in
all of the following, EXCEPT: Correct Answers A. Loss ratio
B. Combined ratio
C. Expense ratio
D. Overall ratio
C. A decrease in incurred losses would decrease the loss ratio,
which is included in the combined ratio and the overall
operating ratio. The expense ratio would not decrease.
A financial analyst determines that the combined ratio for the
DEF Insurance Company was 112 percent for the prior year.
Which one of the following statements best describes how the
analyst can interpret this information for the year? Correct
Answers The insurer had an underwriting loss.
A flex rating law is Correct Answers An insurance rating law
under which prior approval is required only if the new rates
exceed a certain percentage above (and sometimes below) the
rates previously file.
,A mutual insurance company is owned by Correct Answers
Policyholders
A northeastern state in the US has a mandatory rate law in
effect. A southeastern state has established a file-and-use law. A
Pacific coast state requires insurers to follow a prior-approval
law, and a midwest state has enacted a flex rating law. Which
one of the states and its regulators asserts the greatest extent of
control over insurer rates? Correct Answers Midwest, pacific
coast, southeastern
answer - Northeastern
A policy provides coverage starting on April 1 with an annual
premium of $800. How much premium is earned as of June 30?
Correct Answers The earned premium is $200 because three
months of coverage have been provided. 3/12 X $800 = $200
A policy that combines property, crime, and liability coverages
into one policy is referred to as a(n) Correct Answers D.
Commercial package policy (CPP).
A reciprocal insurance exchange Correct Answers B. Is an
unincorporated association providing insurance coverage to its
subscribers.
A reinsurance company Correct Answers Correct. The reinsurer
assumes some or all of the potential costs of insured loss
exposures of the primary insurer.
, A small business owner concerned about something happening
and not being able to work or earn a living for an extended
period of time due to an accident should purchase Correct
Answers D. Disability insurance.
A stock insurer differs from a reciprocal insurance exchange in
which one of the following ways? Correct Answers A.
Stockholders own a stock insurer. Subscribers own a reciprocal
insurance exchange.
A stock insurer is distinguished from a mutual insurer by the
fact that Correct Answers Owners are not necessarily insureds.
ABC Insurance Company's combined ratio is 102. Its operating
ratio is 98. These ratios indicate that Correct Answers ABC's
return on investments is offsetting the unprofitable underwriting
performance.
Admitted assets are types of property that regulators allow
insurers to show as assets on their financial statements because
they are Correct Answers Easily converted to cash at or near
their market value.
All of the following are types of private insurers, EXCEPT:
Correct Answers Correct. A state workers compensation fund is
not a private (nongovernmental) insurer.
All of the following describe Lloyd's, EXCEPT: Correct
Answers D. Primarily insurers unusual exposures
SOLUTIONS
A company interested in improving cash flow should consider
meeting its insurance needs through which one of the following
types of insurance organizations? Correct Answers Correct.
With a captive, instead of paying premiums to an unrelated
insurer, a company can invest its funds until they are needed for
claims.
A decrease in incurred losses will generally cause a decrease in
all of the following, EXCEPT: Correct Answers A. Loss ratio
B. Combined ratio
C. Expense ratio
D. Overall ratio
C. A decrease in incurred losses would decrease the loss ratio,
which is included in the combined ratio and the overall
operating ratio. The expense ratio would not decrease.
A financial analyst determines that the combined ratio for the
DEF Insurance Company was 112 percent for the prior year.
Which one of the following statements best describes how the
analyst can interpret this information for the year? Correct
Answers The insurer had an underwriting loss.
A flex rating law is Correct Answers An insurance rating law
under which prior approval is required only if the new rates
exceed a certain percentage above (and sometimes below) the
rates previously file.
,A mutual insurance company is owned by Correct Answers
Policyholders
A northeastern state in the US has a mandatory rate law in
effect. A southeastern state has established a file-and-use law. A
Pacific coast state requires insurers to follow a prior-approval
law, and a midwest state has enacted a flex rating law. Which
one of the states and its regulators asserts the greatest extent of
control over insurer rates? Correct Answers Midwest, pacific
coast, southeastern
answer - Northeastern
A policy provides coverage starting on April 1 with an annual
premium of $800. How much premium is earned as of June 30?
Correct Answers The earned premium is $200 because three
months of coverage have been provided. 3/12 X $800 = $200
A policy that combines property, crime, and liability coverages
into one policy is referred to as a(n) Correct Answers D.
Commercial package policy (CPP).
A reciprocal insurance exchange Correct Answers B. Is an
unincorporated association providing insurance coverage to its
subscribers.
A reinsurance company Correct Answers Correct. The reinsurer
assumes some or all of the potential costs of insured loss
exposures of the primary insurer.
, A small business owner concerned about something happening
and not being able to work or earn a living for an extended
period of time due to an accident should purchase Correct
Answers D. Disability insurance.
A stock insurer differs from a reciprocal insurance exchange in
which one of the following ways? Correct Answers A.
Stockholders own a stock insurer. Subscribers own a reciprocal
insurance exchange.
A stock insurer is distinguished from a mutual insurer by the
fact that Correct Answers Owners are not necessarily insureds.
ABC Insurance Company's combined ratio is 102. Its operating
ratio is 98. These ratios indicate that Correct Answers ABC's
return on investments is offsetting the unprofitable underwriting
performance.
Admitted assets are types of property that regulators allow
insurers to show as assets on their financial statements because
they are Correct Answers Easily converted to cash at or near
their market value.
All of the following are types of private insurers, EXCEPT:
Correct Answers Correct. A state workers compensation fund is
not a private (nongovernmental) insurer.
All of the following describe Lloyd's, EXCEPT: Correct
Answers D. Primarily insurers unusual exposures
