AINS 101 MAIN TEST EXAMS ANSWERS AND
QUESTIONS SET A+
✔✔Mutual Fund Company (MFC) offers a wide array of mutual fund options to
investors. Each mutual fund has a different fund objective and set of investment
guidelines that apply to the fund. While MFC gives considerable freedom to its fund
portfolio managers, they are required to abide by the fund's investment guidelines. To
monitor compliance, MFC developed a computer algorithm. The computer algorithm
continuously monitors each fund's compliance with investment guidelines. If a fund
manager violates the investment guidelines, the computer immediately notifies MFC's
internal control director, and corrective action is taken. MFC's use of the computer
algorithm to monitor investment compliance and to provide notification when corrective
action is necessary illustrates use of - ✔✔Artificial Intelligence
✔✔The primary role of insurance is to - ✔✔Indemnify individuals and organizations for
covered losses
✔✔Which one of the following best describes the concept of pooling?
A. Insureds share the cost of each other's losses.
B. Risk management is concerned with positive and negative risks.
C. The financial consequences of unanticipated losses are transferred to an insurer.
D. Insurance benefits society as a whole. - ✔✔Insureds share the cost of each other's
losses.
✔✔A type of insurer that is owned by policyholders and may pay dividends to
policyholders as a return of a portion of premiums paid is a - ✔✔Mutual insurer.
✔✔The state of Maryland operates a residual auto plan (the Maryland Auto Insurance
Fund—MAIF) that provides coverage for drivers who are unable to obtain coverage
from private insurers. Which one of the following is the best rationale for the MAIF
program?
,A. Private insurers face limited competition, and the state increases competitive
pressures by operating this type of plan.
B. Auto insurance is compulsory, and the program makes it possible for all drivers to
have reasonably priced insurance.
C. Private insurers overcharge for auto insurance, and the state provides a low-cost
alternative.
D. Auto insurance for high-risk drivers is profitable, and the program enables the state
to share in the profits. - ✔✔Auto insurance is compulsory, and the program makes it
possible for all drivers to have reasonably priced insurance.
✔✔ABC Company experienced a dramatic ideological shift in corporate policies after a
national election. This is an example of which one of the following quadrants of risk?
A. Operational risk
B. Financial risk
C. Strategic risk
D. Hazard risk - ✔✔Strategic Risk
✔✔Renegade Insurance prides itself on its upstanding reputation through its
commitment to small communities' homeowners coverage needs over the past twenty
years. Which one of Renegade's actions over this time would best illustrate its
continued commitment to maintaining its solvency?
A. Renegade emphasizes that its insurance is readily available and accessible to
customers in its service area that need it.
B. Renegade's producers know policy language well so that they can easily and
understandably answer policyholders' questions.
C. Renegade keeps enough cash assets on hand to cover claims on policies long after
it collected the premiums from customers.
D. Renegade is committed to branching out in the near future to include more
coverages for specialized small businesses. - ✔✔Renegade keeps enough cash assets
on hand to cover claims on policies long after it collected the premiums from customers.
✔✔What term refers to the ability of an insurer to meet its obligations as they become
due? - ✔✔Solvency
✔✔Carlos is new to the insurance business and is learning about insurance regulation
and what he, now working with Grady Insurance, will need to be aware of regarding the
subject of compliance. Which one of the following will Carlos find is accurate as he
better understands why insurance is regulated?
A. Insurance regulation protects customers by guaranteeing insurance is available and
accessible to everyone who needs it.
B. The U.S. insurance industry is governed by federal laws that protect citizens by
leveling the playing field for insurers and policyholders.
,C. Insurance regulation speaks to the types of risks insurers may cover, but does not
play a part in how they invest their profits.
D. Insurance regulation prevents insurers from covering catastrophic occurrences so
insurers can remain solvent. - ✔✔Insurance regulation protects customers by
guaranteeing insurance is available and accessible to everyone who needs it.
✔✔All of the following appear on an insurer's balance sheet, EXCEPT:
A. Liabilities
B. Assets
C. Net income
D. Policyholders' surplus - ✔✔Net income
✔✔An insurer's balance sheet can best be described as a
A. Relationship between revenue and liabilities.
B. Snapshot of its financial position.
C. Relationship between assets and expenses.
D. Summary of premiums written. - ✔✔Snapshot of its financial position
✔✔All of the following are categories of liabilities found on an insurer's balance sheet,
EXCEPT:
A. Loss and loss expense reserves
B. Policyholders' surplus
C. Unearned premium reserves
D. Other liabilities - ✔✔Policyholders' surplus (The major categories of liabilities found
on an insurer's financial statements are loss and loss expense reserves, unearned
premium reserves, and other liabilities. Policyholders' surplus is not a liability category.)
✔✔The financial report for Hometown Insurer contains the following information:
Earned premiums $4,000,000
Written premiums $5,000,000
Net investment income $1,000,000
Incurred losses $3,000,000
Incurred underwriting expenses $2,000,000
What was the Hometown Insurer's combined ratio? - ✔✔(3/4) + (2/5) = .115 (115%)
✔✔How do you get combined ratio? - ✔✔Loss Ratio + Expense Ratio = (Incurred
Losses/Earned Premiums) + (Incurred Underwriting Expenses/Written Premiums)
✔✔The financial report for LMN Insurance contains the following information:
Earned premiums $8,000,000
Written premiums $10,000,000
, Incurred losses $6,000,000
Incurred underwriting expenses $4,000,000
What is LMN Insurance's expense ratio? - ✔✔4/10 = .4 (40%)
✔✔How do you get expense ratio? - ✔✔Incurred underwriting expenses / Written
premiums
✔✔How do you get loss ratio? - ✔✔Incurred Losses / Earned Premiums
✔✔As it continues to grow, Anchoy Insurance is examining other distribution channels
to more effectively market its products. Through this experience, which of one the
following will Anchoy most likely learn?
A. No matter what it selects, Anchoy must use a producer to effectively sell its products.
B. Anchoy can use group marketing to target large numbers of recent local college
graduates.
C. Using call centers will take away its need for customer service representatives or
chatbots.
D. It will market through banks and financial services when utilizing the exclusive
agency distribution channel. - ✔✔Anchoy can use group marketing to target large
numbers of recent local college graduates.
✔✔Spencer Insurance Associates is an independent agency selling primarily
homeowners policies. This agency
A. Is free to work with as many different insurers as it wants.
B. Generally represents its customers rather than insurance companies.
C. Can use the policyholder expiration lists, but they are owned by insurers.
D. Cannot commit an insurer to write a policy, unlike a broker, who usually can. - ✔✔Is
free to work with as many different insurers as it wants.
✔✔The key to the direct writer marketing system is that
A. Customers purchase insurance through call centers.
B. An agency is contracted to sell insurance for one insurer or group of insurers.
C. The insurer is using its own employees as producers.
D. Customers can get quotes for coverage through web-based portals. - ✔✔The insurer
is using its own employees as producers.
✔✔One of the reasons for insurance regulation is to prevent destructive competition. In
which one of the following scenarios would destructive competition be exhibited?
QUESTIONS SET A+
✔✔Mutual Fund Company (MFC) offers a wide array of mutual fund options to
investors. Each mutual fund has a different fund objective and set of investment
guidelines that apply to the fund. While MFC gives considerable freedom to its fund
portfolio managers, they are required to abide by the fund's investment guidelines. To
monitor compliance, MFC developed a computer algorithm. The computer algorithm
continuously monitors each fund's compliance with investment guidelines. If a fund
manager violates the investment guidelines, the computer immediately notifies MFC's
internal control director, and corrective action is taken. MFC's use of the computer
algorithm to monitor investment compliance and to provide notification when corrective
action is necessary illustrates use of - ✔✔Artificial Intelligence
✔✔The primary role of insurance is to - ✔✔Indemnify individuals and organizations for
covered losses
✔✔Which one of the following best describes the concept of pooling?
A. Insureds share the cost of each other's losses.
B. Risk management is concerned with positive and negative risks.
C. The financial consequences of unanticipated losses are transferred to an insurer.
D. Insurance benefits society as a whole. - ✔✔Insureds share the cost of each other's
losses.
✔✔A type of insurer that is owned by policyholders and may pay dividends to
policyholders as a return of a portion of premiums paid is a - ✔✔Mutual insurer.
✔✔The state of Maryland operates a residual auto plan (the Maryland Auto Insurance
Fund—MAIF) that provides coverage for drivers who are unable to obtain coverage
from private insurers. Which one of the following is the best rationale for the MAIF
program?
,A. Private insurers face limited competition, and the state increases competitive
pressures by operating this type of plan.
B. Auto insurance is compulsory, and the program makes it possible for all drivers to
have reasonably priced insurance.
C. Private insurers overcharge for auto insurance, and the state provides a low-cost
alternative.
D. Auto insurance for high-risk drivers is profitable, and the program enables the state
to share in the profits. - ✔✔Auto insurance is compulsory, and the program makes it
possible for all drivers to have reasonably priced insurance.
✔✔ABC Company experienced a dramatic ideological shift in corporate policies after a
national election. This is an example of which one of the following quadrants of risk?
A. Operational risk
B. Financial risk
C. Strategic risk
D. Hazard risk - ✔✔Strategic Risk
✔✔Renegade Insurance prides itself on its upstanding reputation through its
commitment to small communities' homeowners coverage needs over the past twenty
years. Which one of Renegade's actions over this time would best illustrate its
continued commitment to maintaining its solvency?
A. Renegade emphasizes that its insurance is readily available and accessible to
customers in its service area that need it.
B. Renegade's producers know policy language well so that they can easily and
understandably answer policyholders' questions.
C. Renegade keeps enough cash assets on hand to cover claims on policies long after
it collected the premiums from customers.
D. Renegade is committed to branching out in the near future to include more
coverages for specialized small businesses. - ✔✔Renegade keeps enough cash assets
on hand to cover claims on policies long after it collected the premiums from customers.
✔✔What term refers to the ability of an insurer to meet its obligations as they become
due? - ✔✔Solvency
✔✔Carlos is new to the insurance business and is learning about insurance regulation
and what he, now working with Grady Insurance, will need to be aware of regarding the
subject of compliance. Which one of the following will Carlos find is accurate as he
better understands why insurance is regulated?
A. Insurance regulation protects customers by guaranteeing insurance is available and
accessible to everyone who needs it.
B. The U.S. insurance industry is governed by federal laws that protect citizens by
leveling the playing field for insurers and policyholders.
,C. Insurance regulation speaks to the types of risks insurers may cover, but does not
play a part in how they invest their profits.
D. Insurance regulation prevents insurers from covering catastrophic occurrences so
insurers can remain solvent. - ✔✔Insurance regulation protects customers by
guaranteeing insurance is available and accessible to everyone who needs it.
✔✔All of the following appear on an insurer's balance sheet, EXCEPT:
A. Liabilities
B. Assets
C. Net income
D. Policyholders' surplus - ✔✔Net income
✔✔An insurer's balance sheet can best be described as a
A. Relationship between revenue and liabilities.
B. Snapshot of its financial position.
C. Relationship between assets and expenses.
D. Summary of premiums written. - ✔✔Snapshot of its financial position
✔✔All of the following are categories of liabilities found on an insurer's balance sheet,
EXCEPT:
A. Loss and loss expense reserves
B. Policyholders' surplus
C. Unearned premium reserves
D. Other liabilities - ✔✔Policyholders' surplus (The major categories of liabilities found
on an insurer's financial statements are loss and loss expense reserves, unearned
premium reserves, and other liabilities. Policyholders' surplus is not a liability category.)
✔✔The financial report for Hometown Insurer contains the following information:
Earned premiums $4,000,000
Written premiums $5,000,000
Net investment income $1,000,000
Incurred losses $3,000,000
Incurred underwriting expenses $2,000,000
What was the Hometown Insurer's combined ratio? - ✔✔(3/4) + (2/5) = .115 (115%)
✔✔How do you get combined ratio? - ✔✔Loss Ratio + Expense Ratio = (Incurred
Losses/Earned Premiums) + (Incurred Underwriting Expenses/Written Premiums)
✔✔The financial report for LMN Insurance contains the following information:
Earned premiums $8,000,000
Written premiums $10,000,000
, Incurred losses $6,000,000
Incurred underwriting expenses $4,000,000
What is LMN Insurance's expense ratio? - ✔✔4/10 = .4 (40%)
✔✔How do you get expense ratio? - ✔✔Incurred underwriting expenses / Written
premiums
✔✔How do you get loss ratio? - ✔✔Incurred Losses / Earned Premiums
✔✔As it continues to grow, Anchoy Insurance is examining other distribution channels
to more effectively market its products. Through this experience, which of one the
following will Anchoy most likely learn?
A. No matter what it selects, Anchoy must use a producer to effectively sell its products.
B. Anchoy can use group marketing to target large numbers of recent local college
graduates.
C. Using call centers will take away its need for customer service representatives or
chatbots.
D. It will market through banks and financial services when utilizing the exclusive
agency distribution channel. - ✔✔Anchoy can use group marketing to target large
numbers of recent local college graduates.
✔✔Spencer Insurance Associates is an independent agency selling primarily
homeowners policies. This agency
A. Is free to work with as many different insurers as it wants.
B. Generally represents its customers rather than insurance companies.
C. Can use the policyholder expiration lists, but they are owned by insurers.
D. Cannot commit an insurer to write a policy, unlike a broker, who usually can. - ✔✔Is
free to work with as many different insurers as it wants.
✔✔The key to the direct writer marketing system is that
A. Customers purchase insurance through call centers.
B. An agency is contracted to sell insurance for one insurer or group of insurers.
C. The insurer is using its own employees as producers.
D. Customers can get quotes for coverage through web-based portals. - ✔✔The insurer
is using its own employees as producers.
✔✔One of the reasons for insurance regulation is to prevent destructive competition. In
which one of the following scenarios would destructive competition be exhibited?
