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100
A measure of the loss uncertainty of the insurance sold by an insurer?
Underwriting Risk
100
IRIS Ratio 1 – Gross Premiums to Policyholders' Surplus can be distorted by inter-company pooling arrangements because insurers that participate in those pools tend to
Overstate gross premiums.
100
How can a reduction in the value of an organization's goodwill improve cash flow?
A tax reduction increases net earnings.
100
Which one of the following best represents capital for an insurer? A. Policyholder's surplus and current assets B. Policyholder's surplus and long-term debt C. Paid-in equity and policyholder's surplus D. Assets minus liabilities
B. Policyholder's surplus and long-term debt
100
One of the generally accepted accounting principles (GAAP) is the conservatism principle, which requires A. An organization’s assets to be recorded at their purchase price or production price. B. Transactions to be recorded in a manner such that that assets and earnings are not overstated. C. An organization to use the same accounting principles and reporting practices in every accounting period. D. Expenses incurred in generating revenues to be matched against those revenues.
B. Transactions to be recorded in a manner such that that assets and earnings are not overstated.
200
Changes in business ownership entails one company acquiring part or all of another company. Which one of the following best explains how a merger differs from an acquisition?
Answer - In a merger the target company ceases to exist while in an acquisition it may continue.
200
Which one of the following is a qualitative factor used by A.M. Best to evaluate an insurer's financial condition?
Market position
200
Investors in a company have a priority interest in the earnings of the company. From highest to lowest, order the priority for a company distributing profits. A. Common stock dividends, preferred stock dividends, interest payments on bonds B. Preferred stock dividends, common stock dividends, interest payments on bonds C. Interest payments on bonds, preferred stock dividends, common stock dividends D. Interest payments on bonds, common stock dividends, preferred stock dividends
Interest payments on bonds, preferred stock dividends, common stock dividends
200
The value of BenShield Insurance is $540 million dollars. They are acquiring The Matco Company, valued at $180 million. The two companies combined are valued at $810 million. If BenShield pays $216 million in cash to the Matco owners, the BenShield shareholders gain
$54 million
200
APD Insurance writes a liability policy for BioKim Pharmaceuticals. BioKim has been involved in a class action lawsuit pertaining to deaths related to their experimental cardiac medication. APD anticipates a large settlement within the coming months. As a result, some of APD's financial assets become impaired. The impairment of these assets would be A. Included in the insurer's Other Income (Loss) accounting. B. Included in net investment income. C. Counted as an unrealized capital loss as the lawsuit is still pending. D. Reflected in policyholders' surplus.
Reflected in policyholders' surplus.
300
Professional liability exposure for agents and brokers increases in a soft market because
Insurer insolvencies increase
300
An insurer can improve its balance sheet values by increasing the value of their assets. Which one of the following would be a way of accomplishing this?
Sale and leaseback
300
The balance sheet provides a snapshot of an organization's financial condition - when?
At a given point in time.
300
Business acquisitions occur to reduce costs, make more effective use of resources and positively affect the value of the company. By combining companies, cost efficiency is said to have been reached when costs
Cannot be further decreased with the present level of output.
300
Marion Insurance anticipates making a one-time $1 million payment in five years for a large liability loss. The investment vehicle that would provide the least amount of interest rate risk if Marion intends to cash-match its investment and underwriting portfolios would be A. A floating rate bond with a one-year maturity date. B. A zero-coupon bond with a five-year maturity date. C. A floating rate bond with a ten-year maturity date. D. A zero-coupon bond with a fifteen-year maturity date.
B. A zero-coupon bond with a five-year maturity date.
400
Business reasons for acquisitions include both:
Technological efficiency and reduced cost of financial distress.
400
Assets on the balance sheet are classified as current and noncurrent. Which one of the following is classified as a noncurrent asset? A. A $10,000 certificate of deposit that matures in fifteen months. B. Inventory for sale that was purchased one year ago. C. A copyright that expires in ten months. D. Marketable securities purchased fifteen months ago.
A copyright that expires in ten months.
400
Reliable Plumbing plans to replace its entire fleet of service vehicles. Reliable expects this investment to result in cash flow savings of $10,000 the first year, $20,000 the second year, and $15,000 the third year. At that time, they expect to have to replace the vehicles again. If the interset rate is six percent, the present value of the savings is
$39,828
400
The board of directors for PDM Metallurgy, Inc. is concerned that they may be targeted for a hostile takeover. The board determines that their best defensive course of action is to provide ARC Welding, Inc. the option to purchase a block of PDM stock in the event of a hostile takeover attempt. This defensive strategy is called
Lockup
400
Under statutory accounting, the immediate effect of a property and liability insurance company writing a new insurance policy is A. An increase in net income and a reduction in assets. B. An increase in assets and a reduction in liabilities. C. A reduction in unearned premiums and an increase in policyholders’ surplus. D. A drain on policyholders’ surplus.
D. A drain on policyholders’ surplus.
500
The two principal insurer liabilities that arise from the sale of insurance policies are loss reserves and
Unearned premium reserves
500
Year-end balance sheet entries for We Make Things, Inc. (WMTI), appear below. Assets Cash $ 40 All other assets $ 500 Total assets $ 540 Liabilities and Owners' Equity Total liabilities $300 Owner's equity: Paid-in capital $210 Retained earnings 30 Total owners' equity $240 Liabilities and Owners' Equity $540 What is the same amount as the total in WMTI's statement of changes in owner's equity?
$240
500
A bond with a face value of $1,000 has had a three percent rate of return over the last year. If there had been a $10 capital gain over this period, what is the bond’s coupon rate?
2%
500
If an insurance market has hardened because of supply restrictions,
New competitors will increase supply.
500
An insurance company is currently operating with a debt to equity ratio of 0.5 and they plan to increase that to 1.0 through the issue of additional debt without issuing any additional equity. Taking on additional debt, assuming net income stays, the same will A. Decrease the firm's return on equity as no additional equity was issued. B. Increase the firm's return on equity as no additional equity was issued. C. Increase the firm's financial risk as additional equity has a higher required return. D. Decrease the firm's financial risk as no additional equity was issued.
B. Increase the firm's return on equity as no additional equity was issued.