Chapter 6

Question 1

4 types of insurers

Answer 1

Organizations operating for the profit of their owners.
Co-operative organizations operating for the benefit of their members only.
Government insurance organizations.
Captive insurers

Question 2

How do insurance companies Profit?

Answer 2

Chunk of money that can be invested.

Interest rate on investments.

Write more in premiums than pay out in claims.

Question 3

Mutual Companies

Answer 3

Is a form of co-operative enterprise owned by its policy holders. Also known as members.

Question 4

Factory Mutual

Answer 4

Insurance companies of the mutual type

Question 5

Mutual Companies

Answer 5

The rates can fluctuate- depending on the rates.

Question 6

Government insurance

Answer 6

Monopolistic
Government supplies basic coverage

Question 7

Captive insurance companies

Answer 7

Form their own insurance
A risk financing mechanism established to finance retained losses.
Buys reinsurance
Pays claims

Question 8

Subscribed Capital

Answer 8

The amount of stocks sold by a corporation.

Question 9

Underwriting profit

Answer 9

The amount of money an insurance company gains as a result of its insurance operations. Excess of earned premiums collected over the loss payments and expenses.

Question 10

Earned premiums

Answer 10

The amount of the premium earned or charged for the period of time a policy was in effect.

Eg 365 day policy - $1 day. Cancel on day 100. $100 is returned. Unless cancel with short term - could be fees.

Question 11

Insurance companies Organization

Answer 11

Finance, accounting
Marketing
Underwriting
Claims - inc SIU

Question 12

Finance accounting and investments.

Answer 12

There job is to make sure companies have reserves, loss reserves, commissions,
OSFI and investment.

Question 13

Reserves

Answer 13

Fund that are set aside for obligations such as liabilities of unearned premiums, unpaid claims.

Question 14

Loss reserves

Answer 14

The amount that is carried on the balance sheet for payment of claims.
Eg money to pay for a large hail storm.

Question 15

Commissions

Answer 15

The amount of money that goes to the broker for brining in the business

Question 16

Investments
OSFI - office superintendent financial institution.

Answer 16

Canada regulator.
Making sure everything is working the way it should be.

Question 17

Actuary

Answer 17

One who specializes in the mathematics of insurance, mortality rates and the like.

Question 18

Marketing Agency or Production

Answer 18

Property and casualty companies develop new models and strategies to communicate with consumers, shareholders, regulators, media and others.

Question 19

Underwrite

Answer 19

To insure - risk and then decide on its eligibility

Question 20

Producer

Answer 20

A broker or an agent who sells insurance.

Question 21

Technical services

Answer 21

An area used by underwriters that specializes in hazards, loss prevention.

Question 22

Claims

Answer 22

Unique to Insurance.
Review and settle claims.

Question 23

Reinsurance

Answer 23

Spread the risk to other insurance companies.

Question 24

Law of large numbers

Answer 24

The mathematical premise that states that the degree of uncertainty reduced as the number of events increases.

Question 25

Cede

Answer 25

An insurers transferral or signing over part of an insurance risk to a reinsurer.

Question 26

Cession

Answer 26

A reinsurance term, that which is ceded.

Question 27

Retain

Answer 27

The portion of the risk that is kept by the insurance company. While the remainder is ceded to a reinsurer.

Question 28

Reinsurer

Answer 28

An insurance company that reinsurers primary insurance companies.

Question 29

Retro-cede

Answer 29

To cede a part of a risk to another insurer or reinsurer.

Question 30

Retro-cessionaire

Answer 30

The reinsurance company that accepts a retrocession from another company.

Question 31

Why do we Resinsure

Answer 31

Increase capacity Maintain Reserve Reduce catastrophic loss effects Provide stability in fluctuating market Cease operations

Question 32

Types of Reinsurance

Answer 32

Proportion reinsurance Non proportional reinsurance

Question 33

Proportional reinsurance

Answer 33

A type of reinsurance where the company shares loss payments in the same proportion that it shares premium and policy amounts.

Question 34

Non proportional reinsurance

Answer 34

Reinsurance in which the reinsurers portion of loss depends on the size of the loss and the dollar level at which the reinsurance attaches.

Question 35

Treaty

Answer 35

An agreement between an insurance company and a reinsurer.

Question 36

Facultative reinsurance

Answer 36

Reinsurance of risks on an individual case by case basis subject to acceptance or rejection by the insurer.

Question 38

Which statement correctly to describes mutual companies: A - they are companies with the main purpose of making a profit for shareholders. B- the original purpose was community involvement. C - they are based on the principle of mutual aid, where each policyholder is a member.

Answer 38

C - based on mutual aid

Question 39

Which statement best describes stock companies A - main purpose is making a profit for the shareholders. B- companies owned by their members C - companies that require no capital or shareholder.

Answer 39

A - main purpose is making a profit for the shareholders.

Question 40

What is underwriting profit? a. Fee charged for providing the insurance policy to the insured b. Unearned premium on the fee paid by the insured c. Commission paid to the broker d. Amount of money an insurance company gains as a result of its insurance operations

Answer 40

D amount of money an insurance company gains as a result of its insurance operations.

Question 41

What is subscribed capital? Question 4 Select one: a. Amount of stock sold by a corporation b. Amount of premium paid by the insured c. Amount of commission paid to the broker who sold the policy d. Value of the premium note

Answer 41

The correct answer is: Amount of stock sold by a corporation

Question 42

What is the role of special investigation units? Question 5 Select one: a. Adjust claims over the telephone b. Investigate suspicious claims c. Research investments for insurer capital funds d. Conduct background searches on job candidates

Answer 42

Many insurance companies have established special investigation units (SIUs), staffed by former law enforcement officers, senior adjusters, and possibly other specialists, whose function is to investigate suspicious claims. The correct answer is: Investigate suspicious claims

Question 43

What departments are unique to insurance companies? Question 6 Select one: a. Marketing, underwriting, and claims b. Actuarial, claims, and underwriting c. Accounting, claims, and underwriting d. Human resources, accounting, and marketing

Answer 43

In many cases, the operational structures of insurers are similar to any other business enterprise. But some departments are unique to insurers: actuarial, underwriting, and claims. The correct answer is: Actuarial, claims, and underwriting

Question 44

What is an underwriting loss? Question 7 Select one: a. Money the insurer sets aside to pay claims that have been incurred but not reported yet b. Money that the insurer pays for the salaries of its underwriters c. Money that an insurance company loses as a result of its insurance operations d. Money that the insurer pays for claims

Answer 44

An underwriting loss is the amount of money that an insurance company loses as a result of its insurance operations. The correct answer is: Money that an insurance company loses as a result of its insurance operations

Question 45

What relates to the degree of certainty in predicting future losses? Question 8 Select one: a. Theory of relativity b. Combination of risks equation c. Law of large numbers d. Theory of evolution

Answer 45

The law of large numbers is the mathematical premise that states that the degree of uncertainty is reduced as the number of events increases. The correct answer is: Law of large numbers

Question 46

What is facultative reinsurance? Question 9 Select one: a. Reinsurance of risks on an individual case-by-case basis subject to acceptance or rejection by the insurer b. Reinsurance of risks on a class-by-class basis, so all risks in a designated class are automatically reinsured c. Reinsurance in which the reinsurer automatically accepts a portion of the ceding company's liability for a specified class d. Reinsurance on an excess of loss basis covered by a treaty negotiated annually

Answer 46

Facultative reinsurance is reinsurance of risks on an individual case-by-case basis subject to acceptance or rejection by the insurer. The correct answer is: Reinsurance of risks on an individual case-by-case basis subject to acceptance or rejection by the insurer

Question 47

What is treaty insurance? Question 10 Select one: a. Insurance that is placed on an individual case-by-case basis b. Insurance that is placed on a facultative excess basis c. Reinsurance in which an agreement between the insurer and the reinsurer provides for automatic reinsurance without the insurer having to submit every risk to the reinsurer d. Reinsurance in which an agreement between the insurer and the reinsurer requires the insurer to submit every risk to the reinsurer for approval

Answer 47

Treaty reinsurance is an agreement between the insurer and the reinsurer that provides for automatic reinsurance without the insurer having to submit every risk to the reinsurer. The correct answer is: Reinsurance in which an agreement between the insurer and the reinsurer provides for automatic reinsurance without the insurer having to submit every risk to the reinsurer