AIAF 114 Chapter 2 Practice Exam Questions With Correct Answers!!

When premiums earned during any specific accounting period are less than incurred losses plus underwriting expenses incurred during the period, there will be an - Answer-Underwriting loss. A principal liability of insurers is the unearned premium reserve. Which one of the following statements best describes the unearned premium reserve? - Answer-The unearned premium reserve represents premiums paid but not yet earned Unrealized capital gains are not included in accounting income. Under statutory accounting principles (SAP), unrealized capital gains are included in - Answer-Policyholders' surplus. How does the accounting for pension contributions that an insurer makes for nonvested employees differ under statutory accounting principles (SAP) and generally accepted accounting principles (GAAP)? - Answer-Under SAP, the contributions are not tax deductible; under GAAP, the contributions are tax deductible. ABC Insurance Company entered into a quota share reinsurance agreement with XYZ Reinsurance. Under statutory accounting principles, how are reinsurance recoverables from XYZ for unpaid losses and loss adjustment expenses accounted for on ABC's financial statements? - Answer-hey are netted against ABC's loss and loss adjustment expense reserves on the balance sheet Under GAAP, which one of the following expenses incurred by insurers is matched to earned premiums? - Answer-Policy acquisition costs Which one of the following is amortized when valued under statutory accounting principles (SAP)? - Answer-Invested bond assets Which one of the following is a characteristic of the balance sheet of the National Association of Insurance Commissioners (NAIC) Annual Statement? - Answer-It classifies surplus into three major parts: contributed surplus, unassigned surplus, and treasury stock A unique category on an insurer's balance sheet is deferred policy acquisition costs. A similar category on a non-insurer's balance sheet is - Answer-Prepaid expense.Earned premium on the statement of income of the National Association of Insurance Commissioners (NAIC) Annual Statement is calculated as - Answer-The sum of the year's written premiums plus the unearned premium reserve at the beginning of the year, less the unearned premium reserve at the end of the year Which one of the following statements about various schedules to the National Association of Insurance Commissioners (NAIC) Annual Statement is true? - Answer-Schedule F provides information the insurer's reinsurance arrangements, including reinsurance assumed and reinsurance ceded. As a component of insurer income, other income consists of revenues and expenses that are not related to income from either - Answer-Underwriting or investment activities. An insurer's income statement can be described as a financial statement that shows the - AnswerRelationship between revenues, expenses, and net income. An applicant/insured may pay the premium to his or her insurance agent. How are premium balances due from an agent accounted for on an insurer's financial statements under statutory accounting principles (SAP)? - Answer-Premium balances due from agents are an admitted asset unless they are more than 90 days past due. Which one of the following statements concerning the uses and differences between Generally Accepted Accounting Principles (GAAP) and Statutory Accounting Principles (SAP) is true? - AnswerGAAP treats a business as a going concern and focuses on measuring income, while SAP focuses on solvency and meeting policyholder obligations The two principal insurer liabilities that arise from the sale of insurance policies are loss reserves and - Answer-Unearned premium reserves The largest asset for many insurance companies is their investment in bonds. Under statutory accounting principles (SAP), how is a bond valued on an insurance company's balance sheet? - Answer-At the bond's amortized cost