Chap005 - Chapter 5 Insurer Ownership, Financial, and...

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Chapter 5 Insurer Ownership, Financial, and Operational Structure I. Multiple Choice 1. The difference between an insurer’s market value of assets and its market value of liabilities is called: a. economic capital b. economic profit c. reported capital d. expected losses Answer: a Type: K 2. An insurance company which is owned by its policyholders is called a: a. mutual insurer b. stock insurer c. Lloyd’s association d. life insurer Answer: a Type: K 3. The benefits of an insurance company holding more capital include: a. lower premiums b. better investment returns c. reduced risk of insolvency d. lower taxes for the insurer Answer: c Type: A 4. All of the following are methods used by insurers to reduce insolvency risk except : a. diversifying across product lines b. diversifying across geographic regions c. reinsurance d. investing in stocks Answer: d 28
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Type: K 5. Which of the following is (are) true about the purchase of reinsurance by insurers? a. The purchase of reinsurance reduces underwriting risk. b. Reinsurance can substitute for capital and allow an insurer to hold less capital without increasing its insolvency risk. c. When an insurer buys reinsurance, it is giving up some of its potential underwriting profit to the reinsurer. d. All of the above are true. Answer: d Type: A 6. In a proportional reinsurance contract, a. the reinsurer pays a premium to the ceding insurer. b. the risk is shared equally between the reinsurer and the primary insurer. c. the premium and the claims costs will be shared between the primary insurer and reinsurer in the same proportion. d.
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This note was uploaded on 10/24/2011 for the course IDS 472 taught by Professor Wang during the Spring '10 term at UChicago.

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Chap005 - Chapter 5 Insurer Ownership, Financial, and...

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