Chap007 - Chapter 7 Insolvencies, Solvency Ratings, and...

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Chapter 7 Insolvencies, Solvency Ratings, and Solvency Regulation I. Multiple Choice 1. The number of insurance company insolvencies in the United States: a. has generally been low. b. increased significantly in the 1980s compared to historical norms. c. has caused substantial increases in guaranty fund assessments. d. all of the above Answer: d Type: K 2. All of the following factors have contributed to insurance company insolvencies except : a. catastrophe losses b. inadequate rates c. general business cycle factors d. inadequate capital Answer: c Type: K 3. Of the following lines of insurance, which one did not contribute to unexpectedly high claim costs in the 1980s: a. environmental liability b. professional liability (malpractice) c. product liability d. life Answer: d Type: K 4. Which of the following insurers is well-known for its highly publicized insolvency which was due in part to its investments in high yield (junk) bonds? a. New York Life b. Travelers c. Executive Life d. Prudential 40
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Answer: c Type: K 5. What is meant by a “flight to quality” in insurance markets? a. Policyholders withdraw funds from insurance companies and invest in low risk securities. b. Policyholders cancel policies with high risk insurers and buy insurance from better rated companies. c. Low risk policyholders decide to go uninsured because rates are too high. d. Insurers decide to invest funds only in low risk assets. Answer: b Type: K 6. Which of the following is not a leading private rating agency for insurance companies? a. Standard and Poor’s b. A.M. Best c. NAIC d. Moody’s Answer: c Type: K 7. Which of the following is not a major component of state insurer solvency regulation? a. restrictions on insurer capital b. monitoring of insurer insolvency risk c. monitoring of insurer underwriting of small businesses d. the guaranty fund system Answer: c Type: K 8. Complete regulatory protection of insurance consumers against loss due to insurer failure would tend to:
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Chap007 - Chapter 7 Insolvencies, Solvency Ratings, and...

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