TEST BANK
CAPITAL MARKETS: INSTITUTIONS AND INSTRUMENTS
FABOZZI/MODIGLIANI
Chapter 4
INSURANCE COMPANIES
MULTIPLE CHOICE
1. Which of the following terms are associated with insurance companies?
[E]
2. Which of the following is true regarding the income of an insurance company?
a. The income from premiums paid is an unstable type of revenue.
3. A stock insurance company:
[M]
4. The risk insured against death is which of the following types of insurance?
5. “Any occ” disability insurance:
[M]
6. Pension plan sponsors often purchase which of the following as a pension investment?
[M]
7. An annuity is often described as:
[D]
8. Companies that provide insurance for both life and health and property and casualty are
called:
[M]
9. According to the McCarran Ferguson Act of 1954, the insurance industry is regulated by:
10. Insurance companies have increasingly sold products that have a significant investment
component in addition to their insurance component. Major investment oriented products
include:
[M]
11. The timing and magnitude of the payments for an insurance company is much more
uncertain because of:
[M]
12. STAT surplus:
[M]
13. One reason given for the accelerated demutualization of insurance companies is the:
[M]
14. Insurance companies are really a composite of several companies, which include:
15. According to the reinsurance transaction, the “reinsurer” is:
[M]
16. A form of insurance that has no cash value if the insured party does not die within the set
policy period is called:
[E]
17. The two fundamentally different types of life insurance are term insurance and:
[M]
18. Regarding the taxation of life insurance:
[M]
19. An insurance product that is not guaranteed by the insurance company’s general account
is:
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20. The key distinction between life insurance and property and casualty insurance
companies lies in:
TRUE/FALSE
1. An insurance company is defined by the type of risk insured against.
[E]
2. Insurance policies are legally binding policies for which the policyholder pays insurance
premiums.
[M]
3. The process of deciding which type of risk to insure against is referred to as the
underwriting process.
[E]
4. Investment returns for an insurance company may vary considerably with the
performance of the financial markets.
[E]
5. Long-term care insurance provides fixed guaranteed periodic payments over a long
period of time, typically resulting from a settlement on a disability or other type of
policy.
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6. While an annuity imposes an expense fee on the fund’s performance, mutual funds
impose a mortality and expense fee.
[M]
7. Effectively, a GIC acts as a zero-coupon bond issued by a life insurance company.
[M]
8. Defining liabilities for an insurance company is complicated because the insurance
company commits to make payments at some time in the future, which are recorded as
contingent liabilities on its financial statement.
[M]
9. Growth in the cash value of investment-type life insurance is known as reserves.
[M]
10. The various types of insurance policies differ in the statistical or actuarial accuracy of
estimates of when the event insured against will occur and the amount of the payment.
ESSAY QUESTIONS
1. Discuss the two major forms of life insurance companies.
Key Issues:
2. Explain how the separate functions of insurance companies are now often provided by
different companies.
Key Issues:
3. Discuss the distinctions between L&H and P&C companies.
Key Issues: