04 Jun WHAT IS THIS CALLED WHEN AN INSURER THAT INITIALLY WRITES THE INSURANCE TRANSFERS TO ANOTHER INSURER PART OR ALL OF THE POTENTIAL LOSSES ASSOCIATED WITH SUCH INSURANCE
Question
Question 1 of 25 6.0 Points
Discuss the requirements of an ideal insurable risk.
Question 2 of 25 4.0 Points
The EarthMayShake (EMS) Insurance Company wrote a large number of
property insurance policies in an area where earthquake losses could occur.
When the president of EMS was asked if she feared a severe earthquake might put
the company out of business, she responded, “Not a chance. We transferred
most of that risk to other insurance companies.” What is this called when
an insurer that initially writes the insurance transfers to another insurer
part or all of the potential losses associated with such insurance
Question 3 of 25 3.0 Points
Harold borrowed money from a bank to purchase a fishing boat. He
purchased property insurance on the boat. Harold had difficulty making loan
payments because business was bad. He intentionally sunk the boat, collected
from his insurer, and paid off the loan balance. What type of problem does this
scenario illustrate?
Question 4 of 25 4.0 Points
The LiveForever Life Insurance Company uses an interesting marketing
system—-it has no agents. Instead, the company markets its coverages through
television and radio ads, newspaper inserts, and the Internet. The company is
using what type of marketing system?
Question 5 of 25 4.0 Points
The LetsDoGreatOnTheFirstExam Company plans to sell homeowners insurance
in 5 western states. The company expects that 8 out of every 100 homeowners, on
average, will report claims each year. What do you call the the variation
between the rate of loss that the company expects to occur and the rate of loss
that actually does occur?
Question 6 of 25 3.0 Points
M&M Insurance Company is concerned about its exposure to hurricane
losses for property risks it insured on the Gulf Coast. M&M borrowed money
from investors by issuing financial securities. M&M promised to repay the
money it borrowed with interest if hurricane losses do not exceed a specified
level. If hurricane losses exceed the specified level, M&M will repay less
than it borrowed and use the extra money to fund hurricane losses. What are
these types of securities called?
Question 7 of 25 4.0 Points
Some investors decided to start an insurance company. Each investor
contributed $50,000 to raise the capital required to charter a new company.
Each investor received an ownership interest in the company. The company will
raise additional capital by selling ownership rights to other investors.
Under this type of organization, the customer and owner functions are
separate. What type of insurer is this?
Question 8 of 25 3.0 Points
Jane owns a property and liability insurance agency. She is authorized
to represent several insurance companies and she is compensated by commissions.
Jane’s agency owns the expiration rights to the business she sells. Is Jane an
agent or a broker? And which type?
Question 9 of 25 3.0 Points
InExcess Insurance Company has a surplus-share treaty with Eversafe
Reinsurance. InExcess has a retention limit of $200,000, and nine lines of
insurance are ceded to Eversafe. How much will Eversafe pay if a $1,600,000
building insured by InExcess suffers an $800,000 loss?
Question 10 of 25 3.0 Points
How is the insurance industry’s “capacity” measured?
Question 11 of 25 4.0 Points
The MLX Drug Company would like to market a new hypertension drug. While
the Food and Drug Administration (FDA) was testing the drug, it discovered that
the drug produced a harmful side effect. When MLX learned of the FDA’s test
result, MLX abandoned its plan to produce and distribute the drug. What is this
way of managing risk called?
Question 12 of 25 4.0 Points
The production facility for the IHopeItDoesNotRain Company is located in
a flood plain. Although the risk of flood is low, the company’s risk manager is
concerned that a flood could damage the plant and equipment. He got bids on
flood insurance from two insurance agents, but decided the cost of coverage was
too high relative to the risk. So he did not purchase flood insurance. What is
this type of risk management technique called with respect to the risk of
flood?
Question 13 of 25 3.0 Points
Until a policy is actually issued, there is temporary evidence of the
insurance. What is this called?
Question 14 of 25 4.0 Points
Ben is concerned that if he injures someone or damages someone’s
property he could be held legally responsible and required to pay damages. What
is this type of risk called?
Question 15 of 25 3.0 Points
Jim and Paula started a dry cleaning business. The business may be
successful or it may fail. What is the type of risk called that is present when
either a profit or loss could occur?
Question 16 of 25 4.0 Points
Explain why a company may choose to use self-insurance in an insurance
market that is considered “hard”.
uestion 17 of 25 3.0 Points
The R.I.P. Company manufactures herbicide and pesticide. The company had
difficulty finding affordable liability insurance. R.I.P. established its own
insurance company based in Bermuda for the purpose of insuring R.I.P’s loss
exposures. What would you call the company that R.I.P. formed?
Question 18 of 25 4.0 Points
The WeSellCheapStuff Company is a national retail chain. The company had
one large, central warehouse. At the suggestion of the risk manager, the
company decided to build four smaller regional warehouses so that a loss at the
central warehouse would not be a catastrophic blow to the company’s
distribution system. What type of risk management technique does this
illustrate?
Question 19 of 25 3.0 Points
Fred works in property and liability insurance marketing. He legally
represents insurance purchasers, rather than insurance companies. Fred is paid
a commission on the insurance placed with insurers. Is Fred an agent, direct
writer, or broker?
Question 20 of 25 4.0 Points
Jenna opened a successful restaurant. One night, after the restaurant
closed, a fire started when the electrical system malfunctioned. In addition to
the physical damage, Jenna lost profits that could have been earned while the
restaurant was closed for repairs. The lost profits are an example of what?
Question 21 of 25 3.0 Points
Jan is employed by an insurance company. She reviews applications to
determine whether her company should insure the applicant. She assigns the
applicant to a rating category based on the applicant’s degree of risk. What is
her position in the company?
Question 22 of 25 3.0 Points
Liability Insurance Company (LIC) was approached by a regional airline
to see if LIC would write the airline’s liability coverage. LIC agreed to write
the coverage and entered into an agreement with a reinsurer. Under the agreement,
LIC retains 25% of the premium and pays 25% of the losses, and the reinsurer
receives 75% of the premium and pays 75% of the losses. What type of
reinsurance arrangement best describes this situation?
Question 23 of 25 4.0 Points
Last Year, The WeProtectYou Company had a combined ratio of 102.4 and
lost $10.2 million on the insurance it sold. The company, however, was required
to pay income taxes. What is the best explanation for this apparent
contradiction? (In other words, what was the underwriting loss offset with?)
Question 24 of 25 4.0 Points
The LetsNotHaveAFire Company has production facilities in Salt Lake City
and Cleveland. The probability that in any given year a fire will damage the
production facility in Salt Lake City is 5%. The probability that in any given
year a fire will damage the Cleveland production facility is 4%. What is the
probability that AT LEAST ONE of the production facilities will be damaged by
fire in an given year?
Question 25 of 25 3.0 Points
Granite Insurance Company entered into a treaty reinsurance agreement
with Rock Solid Reinsurance (RSR). Granite’s retention limit is $400,000 and
RSR agreed to provide reinsurance for up to $2.0 million. If Granite writes
an $800,000 policy, RSR is responsible for 50% of the losses. If Granite
insures a $1.6 million risk, RSR is responsible for 25% of any losses. What
type of reinsurance arrangement did Granite enter into with RSR?
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