FIN 341 risk management test 2 UPDATED ACTUAL Questions And Correct
Answers
C
Terms in this set (51)
The property-casualty insurance market in Mississippi is: More concentrated than the aggregate national property-casualty insurance
market
mutual insurers demutualize in order to: access equity capital and improve efficiency
A wholesale insurance broker is an intermediary between a retail agent/broker and an insurance company
you have a house that you would like to insure for $100,000 * ($6/1,000)= $600
$100,000. the rate per $1,000 of coverage is $6 per year.
the annual premium is equal to:
Suppose a class has an expected loss ratio of 80% and at (100%-80%)/80%= 0.25 or 25%
the end of the year it has an actual loss ratio of 100%.
What rate change does the loss ratio method suggest?
Assume an actual loss ratio of 60% and an expected loss 10%
ratio of 50%. Assume a credibility factor of 0.5. According
to the experience rating method, how much should
premiums increase in the next period:
ABC Insurance has a surplus share treaty with DEF Re. DEF RE payment=(total loss-retention)/ (number of lines)
ABC has a retention limit of $200,000 for a single policy ($50,000-$200,000)/4
and 4 lines are ceded to DEF Re. Assume that a $100,000 -150,000/4= -37,500
insurance policy is issued. How much does DEF Re. pay if
a $50,000 loss occurs. In this context, the negative sign indicates that DEF Re receives $37,500 (rather
than paying) because the loss did not exceed ABC Insurance's retention limit. ABC
Insurance retains the entire loss since it is below the $200,000 retention limit.
Therefore, DEF Re does not pay anything in this scenario.
Which of the following reinsurance arrangements is most excess of loss
effective at protecting against high loss ratios following
large losses?
, The U.S. P/C industry has the following data for 2017. Net loss ratio= (incurred losses+ loss adjustment expense)/premiums earned
Premiums Written = 552.6; Premiums Earned = 540.6;
Losses and LAE Incurred = 410.2; Net Investment Income 410.2/540.6= 0.7588
= 49; Underwriting Expenses = 151.1. The combined ratio
(expressed as a %) is: expense ratio= underwriting expenses/premiums written
151.1/552.6=0.2734
combined= sum of loss and expense
0.7588+0.2734= 1.03 or 103%
therefore it is greater than 100% but less than 105%
The U.S. P/C industry has the following data for 2017. Net combined= 1.03
Premiums Written = 552.6; Premiums Earned = 540.6;
Losses and LAE Incurred = 410.2; Net Investment Income investment income ratio=net investment income/earned premiums
= 49; Underwriting Expenses = 151.1. The operating ratio 49/540.6=0.0906
(expressed as a %) is:
operating ratio= combined ratio- investment income ratio
1.03-0.0906= 0.939 or 94%
therefore it is greater than 91% but less than 96%
The $300,000 guaranty fund limit primarily provides an commercial lines
incentive for _______ policyholders to select insurance
companies that are financially strong.
an insurance company owned by shareholders stock insurer
an insurance company owned by the policyholders mutual insurer
an insurance company owned by a parent firm (that is not captive insurer
an insurance company) for the purposes of insuring the
parent firms loss exposures
delta mutual (a mutual insurance company) owns mutual holding company
company alpha, which in turn owns three stock insurance
companies. in this arrangement, company alpha is
described as a:
the entity that was used to remove us liabilities from the berkshire hathaway
lloyds market was called equitas. this US company
assumed those liabilities
the process of selecting, classifying, and pricing underwriting
applicants for insurance
the sales and marketing activities of insurers production
the pricing of insurance and the calculation of insurance ratemaking
premiums
Answers
C
Terms in this set (51)
The property-casualty insurance market in Mississippi is: More concentrated than the aggregate national property-casualty insurance
market
mutual insurers demutualize in order to: access equity capital and improve efficiency
A wholesale insurance broker is an intermediary between a retail agent/broker and an insurance company
you have a house that you would like to insure for $100,000 * ($6/1,000)= $600
$100,000. the rate per $1,000 of coverage is $6 per year.
the annual premium is equal to:
Suppose a class has an expected loss ratio of 80% and at (100%-80%)/80%= 0.25 or 25%
the end of the year it has an actual loss ratio of 100%.
What rate change does the loss ratio method suggest?
Assume an actual loss ratio of 60% and an expected loss 10%
ratio of 50%. Assume a credibility factor of 0.5. According
to the experience rating method, how much should
premiums increase in the next period:
ABC Insurance has a surplus share treaty with DEF Re. DEF RE payment=(total loss-retention)/ (number of lines)
ABC has a retention limit of $200,000 for a single policy ($50,000-$200,000)/4
and 4 lines are ceded to DEF Re. Assume that a $100,000 -150,000/4= -37,500
insurance policy is issued. How much does DEF Re. pay if
a $50,000 loss occurs. In this context, the negative sign indicates that DEF Re receives $37,500 (rather
than paying) because the loss did not exceed ABC Insurance's retention limit. ABC
Insurance retains the entire loss since it is below the $200,000 retention limit.
Therefore, DEF Re does not pay anything in this scenario.
Which of the following reinsurance arrangements is most excess of loss
effective at protecting against high loss ratios following
large losses?
, The U.S. P/C industry has the following data for 2017. Net loss ratio= (incurred losses+ loss adjustment expense)/premiums earned
Premiums Written = 552.6; Premiums Earned = 540.6;
Losses and LAE Incurred = 410.2; Net Investment Income 410.2/540.6= 0.7588
= 49; Underwriting Expenses = 151.1. The combined ratio
(expressed as a %) is: expense ratio= underwriting expenses/premiums written
151.1/552.6=0.2734
combined= sum of loss and expense
0.7588+0.2734= 1.03 or 103%
therefore it is greater than 100% but less than 105%
The U.S. P/C industry has the following data for 2017. Net combined= 1.03
Premiums Written = 552.6; Premiums Earned = 540.6;
Losses and LAE Incurred = 410.2; Net Investment Income investment income ratio=net investment income/earned premiums
= 49; Underwriting Expenses = 151.1. The operating ratio 49/540.6=0.0906
(expressed as a %) is:
operating ratio= combined ratio- investment income ratio
1.03-0.0906= 0.939 or 94%
therefore it is greater than 91% but less than 96%
The $300,000 guaranty fund limit primarily provides an commercial lines
incentive for _______ policyholders to select insurance
companies that are financially strong.
an insurance company owned by shareholders stock insurer
an insurance company owned by the policyholders mutual insurer
an insurance company owned by a parent firm (that is not captive insurer
an insurance company) for the purposes of insuring the
parent firms loss exposures
delta mutual (a mutual insurance company) owns mutual holding company
company alpha, which in turn owns three stock insurance
companies. in this arrangement, company alpha is
described as a:
the entity that was used to remove us liabilities from the berkshire hathaway
lloyds market was called equitas. this US company
assumed those liabilities
the process of selecting, classifying, and pricing underwriting
applicants for insurance
the sales and marketing activities of insurers production
the pricing of insurance and the calculation of insurance ratemaking
premiums
