C16 BUSINESS INSURANCE TEST WITH REAL
QUESTIONS AND WELL VERIFIED DETAILED
ANSWERS || GUARANTEED PASS | LATEST
VERSION 2024/2025
What are some of the reasons that cause an insurance company to underestimate its
reserves? - ANSWER--Company's actuarial department or management is overly
optimistic in setting up estimates
-Technical related issue to court cases that may invoke social inflation for a
specific type of claim
-General economic inflation that caused the price of goods and services to rise
-Inexperienced claims staff or lack of appropriate training may have also caused
claims to be overpaid or led to errors that initiated lawsuits and larger settlements
What does the combined ratio measure? - ANSWER--Used by insurance
companies to measure overall underwriting performance and shows profitability of
the insurance operations
-Indicator of management's efficiency
,-Ratio of less than 100 indicates profit, whereas over 100 indicates a loss
-Does not take investment income into account
What comprises the combined ratio? - ANSWER-It is the combined total of three
key individual ratios:
1. Incurred claims to premiums earned.
2. Commissions and other acquisition costs to premiums earned.
3. Operating expenses to premiums earned.
How is ROE developed? - ANSWER-ROE is Return on equity. It measures
whether a company generates profits from net assets efficiently. The ROE is of
importance to investors. it expresses net income after taxes as percentage of equity.
Net Income After Taxes / Equity x 100 = ROE
Net Written Premium / Equity = Ratio of written premium to equity. (Determines
capacity)
What is the difference between a common share and a preferred share? -
ANSWER--Common represents part ownership of a company WITH voting rights.
Receives a portion of its profits after dividends are paid to preferred shareholders.
,-Preferred represents part ownership of the company WITH NO voting rights.
Have priority over common shares concerning payment of dividends and
repayment of capital. The rate of dividend is usually fixed.
What is a balanced investment portfolio? - ANSWER--Primary concern of the
insurer's investment portfolio is safety.
-Achieved by diversifying investments over a number of different securities and
types of securities by industry, geographical location or maturity (bonds)
-Any sudden problem with the value of any one investment will not significantly
affect a portfolio or the operations of the insurer. What type of operational plan
exists when a mutual insurers policyholder is required to sign a premium note
identifying the limit, he or she would be responsible to pay should the company
suffer a financial loss? - ANSWER--A mutual insurer is a form of cooperative
enterprise owned by its policyholders.
-The association is formed for the purpose of insuring one another against the
possibility of certain types of loss and operates on a premium note/assessment plan
-If the company declares a loss, the policyholders will be assessed and a levy will
be determined to make up the deficit, but only up to the agreed amount.
-Profits are shared among the policyholders and are typically redistributed by
reducing premiums rather than refunding to the policy holders.
What does corporate governance mean? - ANSWER--signifies how a corporation
directs itself and how control of this process is managed.
, -encompasses the process, structure and information used to manage a company
and the means by which the board of directors and senior management are held
accountable for their actions
What is the benefit of a flatter hierarchical management structure? - ANSWER-
limits the layers of management an issue must pas through before a decision can be
implemented. there is more distributed decision making. Flat or networked
structure are more common in the changing economic environment and it
recognizes information and knowledge as wealth creating assets. Employees are
able to discharge responsibilities without express management approval.
What is a drawback of a flatter hierarchical management structure? - ANSWER--
provides few opportunities for employees to advance
-the degree of the hierarchy can vary from strong hierarchical (like a ladder) with
lines of reporting going up and lined of command going down to slightly
hierarchical (flat structure) in which employees have enough authority to discharge
the majority of responsibilities without seeking approval from those in senior
management positions.
What does the span-of-control managerial principle assert? - ANSWER-Asserts
that limiting the number of employees who report to the same manager improves
organizational performance. There is no agreement among most organizations as to
what the optimal span of control should be. The manager's span of control will be
affected by the nature and the style of the organization, the aptitude, and
personality of the manager, and the type of work to be produced
What duties would on expect to be performed by a seasoned technical underwriter,
operating out of a head office? - ANSWER--may perform audits on the company's
field units to ensure compliance with corporate directives and best practices
QUESTIONS AND WELL VERIFIED DETAILED
ANSWERS || GUARANTEED PASS | LATEST
VERSION 2024/2025
What are some of the reasons that cause an insurance company to underestimate its
reserves? - ANSWER--Company's actuarial department or management is overly
optimistic in setting up estimates
-Technical related issue to court cases that may invoke social inflation for a
specific type of claim
-General economic inflation that caused the price of goods and services to rise
-Inexperienced claims staff or lack of appropriate training may have also caused
claims to be overpaid or led to errors that initiated lawsuits and larger settlements
What does the combined ratio measure? - ANSWER--Used by insurance
companies to measure overall underwriting performance and shows profitability of
the insurance operations
-Indicator of management's efficiency
,-Ratio of less than 100 indicates profit, whereas over 100 indicates a loss
-Does not take investment income into account
What comprises the combined ratio? - ANSWER-It is the combined total of three
key individual ratios:
1. Incurred claims to premiums earned.
2. Commissions and other acquisition costs to premiums earned.
3. Operating expenses to premiums earned.
How is ROE developed? - ANSWER-ROE is Return on equity. It measures
whether a company generates profits from net assets efficiently. The ROE is of
importance to investors. it expresses net income after taxes as percentage of equity.
Net Income After Taxes / Equity x 100 = ROE
Net Written Premium / Equity = Ratio of written premium to equity. (Determines
capacity)
What is the difference between a common share and a preferred share? -
ANSWER--Common represents part ownership of a company WITH voting rights.
Receives a portion of its profits after dividends are paid to preferred shareholders.
,-Preferred represents part ownership of the company WITH NO voting rights.
Have priority over common shares concerning payment of dividends and
repayment of capital. The rate of dividend is usually fixed.
What is a balanced investment portfolio? - ANSWER--Primary concern of the
insurer's investment portfolio is safety.
-Achieved by diversifying investments over a number of different securities and
types of securities by industry, geographical location or maturity (bonds)
-Any sudden problem with the value of any one investment will not significantly
affect a portfolio or the operations of the insurer. What type of operational plan
exists when a mutual insurers policyholder is required to sign a premium note
identifying the limit, he or she would be responsible to pay should the company
suffer a financial loss? - ANSWER--A mutual insurer is a form of cooperative
enterprise owned by its policyholders.
-The association is formed for the purpose of insuring one another against the
possibility of certain types of loss and operates on a premium note/assessment plan
-If the company declares a loss, the policyholders will be assessed and a levy will
be determined to make up the deficit, but only up to the agreed amount.
-Profits are shared among the policyholders and are typically redistributed by
reducing premiums rather than refunding to the policy holders.
What does corporate governance mean? - ANSWER--signifies how a corporation
directs itself and how control of this process is managed.
, -encompasses the process, structure and information used to manage a company
and the means by which the board of directors and senior management are held
accountable for their actions
What is the benefit of a flatter hierarchical management structure? - ANSWER-
limits the layers of management an issue must pas through before a decision can be
implemented. there is more distributed decision making. Flat or networked
structure are more common in the changing economic environment and it
recognizes information and knowledge as wealth creating assets. Employees are
able to discharge responsibilities without express management approval.
What is a drawback of a flatter hierarchical management structure? - ANSWER--
provides few opportunities for employees to advance
-the degree of the hierarchy can vary from strong hierarchical (like a ladder) with
lines of reporting going up and lined of command going down to slightly
hierarchical (flat structure) in which employees have enough authority to discharge
the majority of responsibilities without seeking approval from those in senior
management positions.
What does the span-of-control managerial principle assert? - ANSWER-Asserts
that limiting the number of employees who report to the same manager improves
organizational performance. There is no agreement among most organizations as to
what the optimal span of control should be. The manager's span of control will be
affected by the nature and the style of the organization, the aptitude, and
personality of the manager, and the type of work to be produced
What duties would on expect to be performed by a seasoned technical underwriter,
operating out of a head office? - ANSWER--may perform audits on the company's
field units to ensure compliance with corporate directives and best practices
