1. TRUE FALSE QUESTIONS

1. In the case of life insurance, an insurable interest must exist at the time of loss.
2. The primary purpose of underwriting is to avoid adverse selection.
3. In most insurance transactions, the insurance agent representing the insurer makes the offer, and acceptance takes place when the insured agrees to purchase the insurance.
4. All insurance contracts are contracts of indemnity.
5. The powers of a life insurance agent are somewhat more limited than those of a property and liability agent.
6. The essential difference between an insurance agent and an insurance broker is with respect to the types of coverage sold.
7. Demutualization is the process by which a mutual insurance company changes its form of ownership to a capital stock insurance company.

2. Define or explain each of words and phrase listed below.

1. Admitted insurer
2. Nonadmitted insurer
3. The Financial Services Modernization Act (Gramm-Leach-Bliley Act)
4. Bancassurance
5. Facultative reinsurance contract
6. Treaty reinsurance contract
7. Reinsurance
8. Ceding company
9. Insurable interest
10. Subrogation
11. Risk-based capital
12. Residual market
13. Finite risk insurance
14. Underwriting risk
15. Pure captive
16. Group captive
17. Loss adjustment expenses (LAE)
18. Alien insurers
19. Cost of risk
20. Misrepresentation
21. File-and-use
22. Elements (4) of an insurance contract
23. Actual cash value (ACV)
24. Other insurance
25. Alternative risk transfer (ART)

3. List the characteristics (seven) of insurance contracts andexplain each characteristic of insurance contract.

4. List and briefly explain the types of insurers as classified by place of incorporating and licensing.

5. Distinguish and explain the differences between agents and brokers in the insurance market.

6. List four principles that support the principle of indemnity and indicate specifically in what way each of the fourprinciples helps to enforce the principle of indemnity.

7. Distinguish captives and self-insurance and discuss the advantages and disadvantages of each.

8. Why is reinsurance used (purposes of using reinsurance)?

9. Briefly explain the distribution system for P/L insurers.

10. Assume that ABC Insurance Company has purchased from QS Reinsurance Company a quota share treaty with a $500,000 limit and a retention of 30 percent and a cession of 70 percent. ABC has written three policies. Policy A insures Building A for $500,000 for a premium of $2,000 with one loss of $10,000. Policy B insures Building B for $100,000 for a premium of $400 with a one loss of $6,000. Policy C insures Building C for $1,000,000 for a premium of $4,000 with one loss of $20,000. Compute the insurance amount (face value of insurance), premiums, and losses under three policies between the primary insurer and the reinsurer.

11. Assume that CEDE Insurance Company has purchased from SS Reinsurance Company a surplus share treaty with a $5,000,000limit and a retention of $70,000. CEDE has written three policies. Policy A insures Building A for $70,000 for a premium of $1,000 with one loss of $12,000. Policy B insures Building B for $140,000 for a premium of $2,000 with a one loss of $20,000. Policy C insures Building C for $2,100,000 for a premium of $30,000 with one loss of $50,000. Compute the insurance amount, premiums, and losses under three policies between the primary insurer and the reinsurer.

12. A drunk driver ran a red light and smashed into Kristen's car. The cost to repair the car is $10,000. She has collision insurance on her car with a $500 deductible.

1. Can Kristen collect from both the negligent driver's insurer and her own insurer? Explain your answer.
2. Explain how subrogation supports the principle of indemnity in this case.

13. More companies form captives or use other 'alternative risk transfer (ART)' programs during the hard market. Why?

Answer rating: 100% (QA)

The detailed answer for the above question is provided below TrueFalse Questions TRUE An insurable interest must exist for life insurance claims TRUE Underwriting aims to prevent adverse selection by ... View the full answer