FINA 3317 - Chapter 15 | Questions with 100% Verified Answers
| Latest Update 2026/2027
Question: Worldwide, _____________ was the costliest year for the worldwide insurance industry; natural
disasters cost insurers a record _____________ in losses.
Answer: 2017; $138 billion
Question: Policy reserves are a(n):
Answer: balance sheet liability.
Question: Which of the following type(s) of life insurance policies do not have a savings feature?
Answer: Term life
Question: In property and casualty insurance the combined ratio is equal to ______________________ divided by
total premiums written.
Answer: the sum of the loss ratio plus the expense ratio
Question: The term "variable" in a variable life policy refers to the
Answer: variable growth rate of the cash value of the policy.
Question: The primary regulator of insurance firms is the:
Answer: state insurance regulator.
Question: Which one of the following statements concerning annuities offered by insurers is not true?
Answer: Annuity payments must cease upon the policyholder's death.
Question: An investor has $25,000 that he can invest today. In addition to this amount, he can also invest
$12,000 per year for 30 years (beginning one year from now) at which time he will retire. He plans on living for
25 years after he retires. If interest rates are 8 percent, what size annual annuity payment can he obtain for his
retirement years? (All annuity payments are at year-end. Round your answer to the nearest dollar.)
Answer: $150,913
Question: A policyholder wishes to annuitize the cash value of her insurance policy at retirement. She desires
an annual payment of $95,000 per year and the cash value is expected to be $1,100,000 at retirement.
Approximately how many payments can she expect to receive if annuity interest rates are 5.122 percent?
Answer: 18
Question: The largest asset category of life insurers is _______________ and the largest liability category is
___________.
Answer: bonds; policy reserves
Question: The most important federal legislation affecting the regulation of life insurance companies prior to
1999 was the
Answer: McCarran-Ferguson Act.
, Question: Which of the following statements are true? I. Catastrophe bonds may be used as a form of
reinsurance. II. Catastrophe bonds are structured so that if an insured event results in large losses for an
insurer, the bond's required payments increase. III. Buyers of catastrophe bonds benefit if the adverse event
occurs. IV. When issued, catastrophe bonds will have promised yields above the risk-free rate.
Answer: I and IV only
Question: In 2018, the average combined ratio after dividends for the P&C industry was___________.
Answer: 99.9
Question: Hurricane damage in a given area is an example of a ____________________ for which it is difficult to
predict loss exposure.
Answer: high-severity, low-frequency event
Question: Property and casualty insurers hold _____________ short-term assets than life insurers because
property and casualty loss rates are _____________ predictable than life insurance loss rates.
Answer: more; less
Question: The operating ratio is calculated as:
Answer: the combined ratio after dividends minus the investment yield.
Question: An insurance line has a loss ratio of 72 percent and an expense ratio of 35 percent, and the firm pays
2 percent of premiums to policyholders as dividends. What level of investment yield is needed to make the
P&C firm break even?
Answer: 9%
Question: The two major components of expense risk for P&C insurers are:
Answer: loss adjustment expenses and variations in commission and other expenses.
Question: At P&C insurers, if the combined ratio is less than 100 percent, the premiums charged were sufficient
to cover:
Answer: both losses and expenses.
Question: For P&C insurers, if the combined ratio is more than 100 percent, that firm:
Answer: may have been profitable if investment returns were high enough.
Question: Estimates of the cost of the September 11, 2001, terrorist attacks on the World Trade Center indicate
that the cost to insurance companies was as high as:
Answer: $40 billion.
Question: A policyholder wishes to annuitize the cash value of her insurance policy at retirement. The cash
value is $725,000. What payment (to the nearest dollar) can he expect if he wishes to receive 15 years of
payments (starting next year) and interest rates are 5.25 percent?
Answer: $71,033
Question: An insurance line has a loss ratio of 62 percent and an expense ratio of 35 percent; the firm pays 2
percent of premiums to policyholders as dividends and has an investment yield to premium ratio of 9 percent.
The operating ratio for this line is:
Answer: 90
| Latest Update 2026/2027
Question: Worldwide, _____________ was the costliest year for the worldwide insurance industry; natural
disasters cost insurers a record _____________ in losses.
Answer: 2017; $138 billion
Question: Policy reserves are a(n):
Answer: balance sheet liability.
Question: Which of the following type(s) of life insurance policies do not have a savings feature?
Answer: Term life
Question: In property and casualty insurance the combined ratio is equal to ______________________ divided by
total premiums written.
Answer: the sum of the loss ratio plus the expense ratio
Question: The term "variable" in a variable life policy refers to the
Answer: variable growth rate of the cash value of the policy.
Question: The primary regulator of insurance firms is the:
Answer: state insurance regulator.
Question: Which one of the following statements concerning annuities offered by insurers is not true?
Answer: Annuity payments must cease upon the policyholder's death.
Question: An investor has $25,000 that he can invest today. In addition to this amount, he can also invest
$12,000 per year for 30 years (beginning one year from now) at which time he will retire. He plans on living for
25 years after he retires. If interest rates are 8 percent, what size annual annuity payment can he obtain for his
retirement years? (All annuity payments are at year-end. Round your answer to the nearest dollar.)
Answer: $150,913
Question: A policyholder wishes to annuitize the cash value of her insurance policy at retirement. She desires
an annual payment of $95,000 per year and the cash value is expected to be $1,100,000 at retirement.
Approximately how many payments can she expect to receive if annuity interest rates are 5.122 percent?
Answer: 18
Question: The largest asset category of life insurers is _______________ and the largest liability category is
___________.
Answer: bonds; policy reserves
Question: The most important federal legislation affecting the regulation of life insurance companies prior to
1999 was the
Answer: McCarran-Ferguson Act.
, Question: Which of the following statements are true? I. Catastrophe bonds may be used as a form of
reinsurance. II. Catastrophe bonds are structured so that if an insured event results in large losses for an
insurer, the bond's required payments increase. III. Buyers of catastrophe bonds benefit if the adverse event
occurs. IV. When issued, catastrophe bonds will have promised yields above the risk-free rate.
Answer: I and IV only
Question: In 2018, the average combined ratio after dividends for the P&C industry was___________.
Answer: 99.9
Question: Hurricane damage in a given area is an example of a ____________________ for which it is difficult to
predict loss exposure.
Answer: high-severity, low-frequency event
Question: Property and casualty insurers hold _____________ short-term assets than life insurers because
property and casualty loss rates are _____________ predictable than life insurance loss rates.
Answer: more; less
Question: The operating ratio is calculated as:
Answer: the combined ratio after dividends minus the investment yield.
Question: An insurance line has a loss ratio of 72 percent and an expense ratio of 35 percent, and the firm pays
2 percent of premiums to policyholders as dividends. What level of investment yield is needed to make the
P&C firm break even?
Answer: 9%
Question: The two major components of expense risk for P&C insurers are:
Answer: loss adjustment expenses and variations in commission and other expenses.
Question: At P&C insurers, if the combined ratio is less than 100 percent, the premiums charged were sufficient
to cover:
Answer: both losses and expenses.
Question: For P&C insurers, if the combined ratio is more than 100 percent, that firm:
Answer: may have been profitable if investment returns were high enough.
Question: Estimates of the cost of the September 11, 2001, terrorist attacks on the World Trade Center indicate
that the cost to insurance companies was as high as:
Answer: $40 billion.
Question: A policyholder wishes to annuitize the cash value of her insurance policy at retirement. The cash
value is $725,000. What payment (to the nearest dollar) can he expect if he wishes to receive 15 years of
payments (starting next year) and interest rates are 5.25 percent?
Answer: $71,033
Question: An insurance line has a loss ratio of 62 percent and an expense ratio of 35 percent; the firm pays 2
percent of premiums to policyholders as dividends and has an investment yield to premium ratio of 9 percent.
The operating ratio for this line is:
Answer: 90
