Pac-Coast Insurance (PCI) concentrates its underwriting activities in California. The
company is concerned that if a catastrophic earthquake occurs, it might threaten the
solvency of the company. To address this risk, PCI issued some debt securities. If a
catastrophic earthquake occurs, PCI does not have to repay the full amount borrowed or
pay interest. The securities PCI issued are called
A) catastrophe futures contracts.
B) interest rate swaps.
C) catastrophe bonds.
D) contingent options contracts.
An elimination (waiting) period is an example of a(n)
A) exclusion.
B) deductible.
C) other-insurance provision.
D) coinsurance provision.
ABC Company in considering a loss control investment. The project will cost
$100,000. It will generate an after-tax net cash flow of $60,000 one year after
investment and an after-tax net cash flow of $60,000 two years after investment. The
present value of $1 received one year from today assuming a 6 percent rate is .9434.
The present value of $1 received two years from today assuming a 6 percent interest
rate is .8900. Assuming a discount rate of 6 percent, what is the net present value (NPV)
of this project?
A) $10,004
B) $13,195
C) $16,604
D) $20,000
Under one type of Medicare Advantage Plan, members of the plan can see any doctor or
health services provider that accepts Medicare patients. If members receive care outside
the network of member physicians and care facilities, they must pay higher
out-of-pocket costs. This type of Medicare Advantage Plan is a
A) Medicare HMO.
B) Medicare PPO.
C) Medicare Special Needs Plan.
D) Medicare Private Fee-for-Service Plan.
Millie is risk manager of JKL Company. She is considering an investment in a loss
control project. The project will cost $40,000. Assuming a 10 percent discount rate, the
present value of the future net cash flows that this project will generate is $60,000.
What is the net present value (NPV) of this project?
A) $20,000
B) $26,000
C) $60,000
D) $100,000
Cal was just hired as XYZ Company’s first risk manager. Cal would like to employ the
risk management process. The first step in the process Cal should follow is to
A) evaluate potential losses faced by XYZ Company.
B) formulate a treatment plan for XYZ Company’s loss exposures.
C) identify potential losses faced by XYZ Company.
D) implement and administer a risk management plan for XYZ Company.
David owns a commercial building with a replacement cost of $4 million. The building
is insured on a replacement cost basis for $2.4 million under a fire insurance policy that
has an 80 percent coinsurance clause. How much will David collect if the building
sustains a covered fire loss with a replacement cost of $80,000?
A) $50,000
B) $60,000
C) $66,667
D) $80,000
Which of the following statements is (are) true with respect to financial institution
bonds?
I. Fidelity coverage covers losses resulting from the dishonest acts of employees.
II. Financial institutions usually insure their crime exposures through financial
institutions bonds.
A) I only
B) II only
C) both I and II
D) neither I nor II
Jack, owner of Jack’s Bar and Grill, was robbed while attempting to deposit receipts at
his bank’s night depository. Jack had purchased an ISO commercial crime coverage
form. This loss would be covered under which insuring agreement?
A) Inside the Premises – Theft of Money and Securities
B) Outside the Premises
C) Money Orders and Counterfeit Currency
D) Inside the Premises – Robbery or Safe Burglary of Other Property
A controversial provision of the Affordable Care Act is the expansion of a public
assistance program designed to make health coverage available to low-income
individuals. By increasing the maximum income level that can be earned and still
qualify for benefits, millions of individuals will be eligible for coverage under this
public assistance program. This public assistance program is called
A) Medicare.
B) Health Maintenance Organization.
C) Affordable Health Exchange.
D) Medicaid.
Which of the following perils is covered under the Dwelling Property 2 (broad form)
policy?
A) weight of ice, snow, or sleet
B) flood
C) theft
D) earthquake
ABC Term 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 type of marketing system that ABC Term Life
Insurance Company uses is called the
A) mass merchandising system.
B) mixed marketing system.
C) direct response system.
D) worksite marketing system.
Which of the following statements about the role of physicians with respect to Medicare
claims is (are) true?
I. Physicians who do not accept an assignment of Medicare claims can charge as much
as 200 percent of the Medicare-approved fee.
II. Physicians who accept assignment agree to accept the Medicare-approved amount as
payment in full.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following statements about reinsurance is true?
A) A reinsurer may not purchase reinsurance.
B) The reinsurer is responsible for providing claims services to the insured after a loss
occurs.
C) The amount of insurance transferred to a reinsurer is called the net retention.
D) The insurer transferring business to a reinsurer is called the ceding company.
With an equity-indexed annuity, what name is given to the method of crediting excess
interest to the annuity?
A) the capitation method
B) the indexing method
C) the distribution method
D) the earnings method
A number of benefits are payable under no-fault plans. Under one provision, benefits
are paid for tasks normally performed by the insured, including such things as lawn
care, housework, and home repairs. These tasks are called
A) home health care services.
B) hospice services.
C) activities of daily living.
D) essential services expenses.
Which of the following statements about accelerated death benefits riders is (are) true?
I. Under a terminal illness rider, after a partial payment is made to the insured, there is a
reduction in the face amount of insurance, cash value, and premiums.
II. Benefits under a long-term care rider are for home health care only.
A) I only
B) II only
C) both I and II
D) neither I nor II