Principles of Risk Management and Insurance, 11e(Rejda)Chapter 7 Financial Operations of Insurerscompany1) LMNMutual Insurance Companyhas total liabilities of $300 million. The has total assets of $380 million. What is LMNs policyholders surplusA) $680 millionB) $340 millionC) $80 millionD) -$80 millionAnswer: CQuestion Status: Previous Editioncompanys2) All of the following would appear in the asset section of an insurance balance sheet EXCEPTA) loss reserves.B) bonds.C) common stock.D) real estate.Answer: AQuestion Status: Previous Edition3) Under one method of estimating a loss reserve, the reserve is based on life expectancy, duration of disability, and similar factors. This method of estimating loss reserves is called theA) judgment method.B) tabular value method.C) loss ratio method.D) average value method.Answer: BQuestion Status: Revised4) Reasons for the unearned premium reserve include which of the following I. To pay losses that occur during the policy period.II.To pay premium refunds to policyholders in the event of cancellation.A) I onlyB) II onlyC) both I and IID) neither I nor IIAnswer: CQuestion Status: Previous Edition5) A property and casualty insurers loss reserve includes estimates for all ofthe following EXCEPTA) claims anticipated but not yet incurred.B) claims reported and adjusted but not yet paid.C) claims reported and filed but not yet adjusted.D) claims incurred but not yet reported to the company.Answer: AQuestion Status: Previous Edition6) Which of the following statements about methods for estimating loss reservesfor property and casualty insurers is (are) trueI. The judgment method involves the use of a statutory formula to estimate the loss reserve.II.The average value method is used when the number of claims is large and theclaims are settled quickly.A) I onlyB) II onlyC) both I and IID) neither I nor IIAnswer: BQuestion Status: Previous Edition7) One item that appears on an insurance companys financial statements is a liability that represents an estimate of the claims reported and adjusted but not yet paid, claims reportedand filed but not yet adjusted, and claims incurred butnot yet reported to the company. This liability is called the insurersA) net income.B) loss reserve.C) admitted assets.D) unearned premium reserve.Answer: BQuestion Status: Previous Edition8) A loss reserve established for each individual claim when it is reported to a property and casualty insurance company is call a(n)A) admitted asset.B) incurred-but-not-reported (IBNR) reserve.C) unearned premium reserve.D) case reserve.Answer: DQuestion Status: Previous Edition9) All of the following items would appear in the income section of an insurance companys income and expense statement EXCEPTA) gain on sale of securities.B) common stock dividends.C) commissions.D) premiums.Answer: CQuestion Status: Previous Edition10) JKL Insurance Company reported the following information on its accounting statements last year:Premiums Written$90,000,000Loss Adjustment Expenses $5,000,000Underwriting Expenses$30,000,000Premiums Earned$100,000,000Incurred Losses$70,000,000What was JKLs loss ratio last yearA) percentB) percentC) percentD) percentAnswer: BQuestion Status: Previous Edition11) JKL Insurance Company reported the following information on its accounting statements last year:Loss Adjustment Expenses $5,000,000Underwriting Expenses$30,000,000Premiums Earned$100,000,000Incurred Losses$70,000,000What was JKLs expense ratio last yearA) percentB) percentC) percentD) percentAnswer: CQuestion Status: Previous Edition12) JKL Insurance Company reported the following information on its accounting statements last year:Premiums Written$90,000,000Loss Adjustment Expenses $5,000,000Underwriting Expenses $30,000,000Premiums Earned$100,000,000Incurred Losses$70,000,000What was JKLs combined ratio last yearA)B)C)D)Answer: DQuestion Status: Previous Edition13) Which of the following statements about property and casualty insurance company operating results is (are) trueI. An insurance company can have a combined ratio greater than 1 (or 100 percent) and still be required to pay income taxes.II. By all measures, the property and casualty insurance industry is highly profitable when compared to other industries.A) I onlyB) II onlyC) both I and IID) neither I nor IIAnswer: AQuestion Status: Previous Edition14) Life insurance policyowners mayborrow the cash value from their life insurance policies. Where are life insurance policy loans shown on a life insurance companys financial statementsA) as an assetB) as a liabilityC) as incomeD) as an expenseAnswer: A Question Status: Previous Edition15) MedProf Insurance markets medical malpractice insurance. The