AIAF 114 - CHAPTER #4 PRACTICE
EXAM QUESTIONS WITH CORRECT
ANSWERS
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
Under the deferral-matching approach to premium accounting - ANSWER-Written
premiums are generally defined as the amount of premium charged for that policy
during the reporting period
Planetary Insurance Company has written a general liability policy, effective January 1,
2011 and expiring January 1, 2012. The yearly premium of $600 was collected on
December 1, 2010. Using a deferral-matching approach and assuming no losses,
expenses, or taxes, the unearned premium liability on March 31, 2011 would be -
ANSWER-$450
Insurers charge an initial deposit premium on a policy when - ANSWER-The policy is
formally agreed to before all contract details have been finalized.
A reinstatement premium under reinsurance treaties is charged when - ANSWER-A
covered event exhausts treaty limits.
Under a deferral-matching approach, which one of the following determines whether a
pro rata or non-pro rata approach should be used to calculate the unearned premium
reserve? - ANSWER-Whether the associated coverage is evenly spread over the policy
term
Which one of the following is an example of premium earned before it is written? -
ANSWER-Audit premium
Under a deferral-matching approach, loss reserves are established for - ANSWER-
Events that occur during the expired portion of the policy period
A premium deficiency reserve is established for which one of the following reasons? -
ANSWER-To prevent a bias in financial statements toward a future earnings loss from
the liability runoff
EXAM QUESTIONS WITH CORRECT
ANSWERS
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
Under the deferral-matching approach to premium accounting - ANSWER-Written
premiums are generally defined as the amount of premium charged for that policy
during the reporting period
Planetary Insurance Company has written a general liability policy, effective January 1,
2011 and expiring January 1, 2012. The yearly premium of $600 was collected on
December 1, 2010. Using a deferral-matching approach and assuming no losses,
expenses, or taxes, the unearned premium liability on March 31, 2011 would be -
ANSWER-$450
Insurers charge an initial deposit premium on a policy when - ANSWER-The policy is
formally agreed to before all contract details have been finalized.
A reinstatement premium under reinsurance treaties is charged when - ANSWER-A
covered event exhausts treaty limits.
Under a deferral-matching approach, which one of the following determines whether a
pro rata or non-pro rata approach should be used to calculate the unearned premium
reserve? - ANSWER-Whether the associated coverage is evenly spread over the policy
term
Which one of the following is an example of premium earned before it is written? -
ANSWER-Audit premium
Under a deferral-matching approach, loss reserves are established for - ANSWER-
Events that occur during the expired portion of the policy period
A premium deficiency reserve is established for which one of the following reasons? -
ANSWER-To prevent a bias in financial statements toward a future earnings loss from
the liability runoff
