Financial Statement Analysis for Insurance Companies
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Questions and Answers

What is the main issue that can arise due to information asymmetry in insurance transactions?

  • Insurance Claims
  • Increased Premium
  • Moral Hazard
  • Adverse Selection (correct)

    • Which of the following is an example of moral hazard in insurance?

  • Claiming insurance after a natural disaster
  • Having a medical examination before buying life insurance
  • Paying higher premium for risky behavior
  • Driving safely after purchasing vehicle insurance (correct)

    • What solution can help mitigate adverse selection in insurance transactions?

  • Deductible Clause
  • Medical Examination (correct)
  • Insurance Claims
  • Increased Premium

    • Which ratio helps measure the profitability of an insurance company through the relationship between insurance profit and net earned premium?

    <p>Margin Insurance Profit</p> Signup and view all the answers

    In insurance, what does RBC2 stand for?

    <p>Risk-Based Capital 2</p> Signup and view all the answers

    Which term in insurance refers to a person who assesses the risk and determines the premiums and terms of coverage?

    <p>Underwriter</p> Signup and view all the answers

    What is the main difference between CAR and RBC2 Ratio?

    <p>RBC2 Ratio is more complex than CAR</p> Signup and view all the answers

    What does GEP stand for in the context of insurance financial statement analysis?

    <p>Gross Earned Premium</p> Signup and view all the answers

    In the provided example, what is the result of deducting Reinsurance Expense from GEP?

    <p>Net Written Premium</p> Signup and view all the answers

    What does the Loss Ratio measure in insurance financial statement analysis?

    <p>The percentage of claims against the total premium earned</p> Signup and view all the answers

    What does the Combined Operating Ratio indicate about an insurance company?

    <p>Overall efficiency in managing expenses and claims</p> Signup and view all the answers

    When calculating Insurance Margin, what two expenses are typically included?

    <p>Underwriting Expenses and Claims Expenses</p> Signup and view all the answers

    What is the new minimum capital requirement for insurance companies as of 2022?

    <p>P1,300,000,000</p> Signup and view all the answers

    What type of companies fall under the regulation of the Insurance Commission (IC) as mentioned in the text?

    <p>Insurance and Reinsurance Companies</p> Signup and view all the answers

    What is the required minimum paid-up capital for new insurance businesses?

    <p>P1,000,000,000</p> Signup and view all the answers

    What does the Risk-based capital (RBC) Requirement measure for insurance companies?

    <p>Solvency</p> Signup and view all the answers

    What does the RBC2 Ratio signify for insurance companies in relation to their capital requirements?

    <p>It should be less than 50% of T1 Capital</p> Signup and view all the answers

    The minimum capital requirement for insurance companies in 2022 is P1,000,000,000 for new business and P500,000,000 for microinsurance.

    <p>False</p> Signup and view all the answers

    The Risk-based capital (RBC) Requirement is not applicable to insurance companies according to the text.

    <p>False</p> Signup and view all the answers

    The RBC2 Ratio must be less than 100% for an insurance company to meet the requirement.

    <p>False</p> Signup and view all the answers

    The T2 Capital should be more than 50% of the T1 Capital to meet the RBC Ratio Requirement.

    <p>False</p> Signup and view all the answers

    The Insurance Commission falls under the Department of Health according to the text.

    <p>False</p> Signup and view all the answers

    The RBC2 Ratio is simpler to calculate compared to the Capital Adequacy Ratio (CAR) in insurance financial statement analysis.

    <p>False</p> Signup and view all the answers

    When calculating the Expense Ratio, underwriting expenses are divided by the net earned premium.

    <p>True</p> Signup and view all the answers

    The Loss Ratio is calculated by dividing claims expenses by the net earned premium in insurance financial statement analysis.

    <p>True</p> Signup and view all the answers

    A Combined Operating Ratio below 100% indicates a profitable insurance company.

    <p>True</p> Signup and view all the answers

    In insurance financial statement analysis, the Insurance Margin is calculated by adding Expense Ratio and Loss Ratio.

    <p>False</p> Signup and view all the answers

    In the context of insurance financial statement analysis, the Net Earned Premium (NEP) is calculated by deducting reinsurance expenses from the gross written premium.

    <p>False</p> Signup and view all the answers

    Adverse selection happens when both parties in a transaction have symmetric information.

    <p>False</p> Signup and view all the answers

    Moral hazard refers to a situation where one party takes excessive risks because it knows the other party will bear the consequences.

    <p>True</p> Signup and view all the answers

    A deductible clause is a solution to adverse selection in insurance transactions.

    <p>False</p> Signup and view all the answers

    The Expense Ratio is calculated by dividing Claims Expense by Net Earned Premium.

    <p>False</p> Signup and view all the answers

    The Loss Ratio measures the profitability of an insurance company through the relationship between insurance profit and net earned premium.

    <p>False</p> Signup and view all the answers

    RBC2 stands for Risk-Based Capital 2 and signifies the minimum capital requirement set for insurance companies.

    <p>True</p> Signup and view all the answers

    The premium for an insurance policy is determined based on the insured's credit score.

    <p>False</p> Signup and view all the answers

    Policy limit is the minimum amount that an insurer will pay under a policy for a covered loss.

    <p>False</p> Signup and view all the answers

    Higher policy limits often result in lower insurance premiums.

    <p>False</p> Signup and view all the answers

    Insurance policies commonly include deductible, premium, and lifetime maximum as critical components.

    <p>False</p> Signup and view all the answers

    The premium for an insurance policy is usually expressed as an annual cost.

    <p>False</p> Signup and view all the answers

    The deductible in an insurance policy is the maximum amount the insurer will pay under that policy.

    <p>False</p> Signup and view all the answers

    Travel insurance typically covers only international travel, not domestic travel.

    <p>False</p> Signup and view all the answers

    Life insurance, health insurance, homeowners insurance, and auto insurance are the most common types of insurance policies.

    <p>True</p> Signup and view all the answers

    It is recommended to get insurance at a younger age as the premiums are usually higher.

    <p>False</p> Signup and view all the answers

    Insurance policies always provide cash benefits to the insured individual when they mature.

    <p>False</p> Signup and view all the answers

    Missing premium payments for insurance can lead to policy lapses that may impact the benefits in case of an unfortunate event.

    <p>True</p> Signup and view all the answers

    Auto insurance is not considered one of the core components of most insurance policies.

    <p>True</p> Signup and view all the answers

    The face value in a general life insurance policy is the amount paid to the policyholder upon the death of the insured.

    <p>False</p> Signup and view all the answers

    Policies with high deductibles are generally more expensive due to the increased out-of-pocket expenses for the policyholder.

    <p>False</p> Signup and view all the answers

    Health insurance policies with higher deductibles usually offer more affordable access to medical care throughout the year.

    <p>False</p> Signup and view all the answers

    Virtually all mortgage companies require borrowers to have insurance coverage for the market value of a property.

    <p>False</p> Signup and view all the answers

    Auto insurance is essential to protect investments in real estate transactions.

    <p>False</p> Signup and view all the answers

    Home insurance covers damages or theft of personal possessions outside the home as well.

    <p>False</p> Signup and view all the answers

    An endowment plan with educational benefits payable is an example of a life insurance policy.

    <p>False</p> Signup and view all the answers

    The Whole Life Insurance Plan mentioned provides cash benefits starting at the end of the 5th policy year.

    <p>False</p> Signup and view all the answers

    The Hospital income plan offers a return of premium if the insured does not outlive the coverage period.

    <p>False</p> Signup and view all the answers

    Insurance companies offer plans that allow the option to choose between Euro or US Dollar currency.

    <p>False</p> Signup and view all the answers

    The Life Insurance policy guarantees payment to named beneficiaries only if the insured dies during their lifetime.

    <p>False</p> Signup and view all the answers

    Annual premiums for auto insurance are paid by auto insurance companies to individuals involved in accidents.

    <p>False</p> Signup and view all the answers

    Insurance policies are primarily used to hedge against risks that may result from damage to the insured or their property, not from liability for damage or injury caused to a third party.

    <p>False</p> Signup and view all the answers

    The core components that make up most insurance policies include the premium, policy limit, and deductible.

    <p>False</p> Signup and view all the answers

    The RBC2 Ratio signifies the minimum capital requirement set for insurance companies, not how efficiently the company is using its capital.

    <p>True</p> Signup and view all the answers

    The Combined Operating Ratio below 100% indicates a profitable insurance company, rather than a company facing financial challenges.

    <p>True</p> Signup and view all the answers

    The Loss Ratio measures the relationship between insurance profit and net earned premium, not the profitability of an insurance company.

    <p>False</p> Signup and view all the answers

    Adverse selection occurs in insurance transactions when one party takes excessive risks knowing that the other party will bear the consequences.

    <p>False</p> Signup and view all the answers

    What does the policy limit refer to in insurance?

    <p>The maximum amount an insurer will pay for a covered loss</p> Signup and view all the answers

    How is an insurance policy's premium typically expressed?

    <p>Monthly</p> Signup and view all the answers

    What factor can influence the determination of an insurance policy's premium?

    <p>Creditworthiness</p> Signup and view all the answers

    In insurance, what does the deductible represent?

    <p>The amount the insured must pay out of pocket before the insurer covers the rest</p> Signup and view all the answers

    Which of the following components of an insurance policy can vary based on different factors?

    <p><strong>Premium</strong></p> Signup and view all the answers

    How does a higher policy limit typically affect insurance premiums?

    <p><strong>Increases premiums</strong></p> Signup and view all the answers

    What is the significance of paying the insurance premium religiously, as advised in the text?

    <p>To ensure cash benefits are available when the policy matures</p> Signup and view all the answers

    Why is it recommended to purchase insurance at a younger age?

    <p>To have lower premiums</p> Signup and view all the answers

    Which component mentioned in the text is crucial for enjoying the face amount of an insurance policy when you are still alive?

    <p>Cash Benefits</p> Signup and view all the answers

    In insurance policies, what does the term 'front-end load' generally refer to?

    <p>A policy where premiums are higher initially</p> Signup and view all the answers

    What is the core purpose of travel insurance based on the provided text?

    <p>To cover costs and losses related to traveling</p> Signup and view all the answers

    Why is getting an insurance plan with cash benefits advisable according to the text?

    <p>To enjoy the face amount when the policy matures</p> Signup and view all the answers

    What is the primary purpose of insurance as discussed in the text?

    <p>To protect against loss resulting from specific contingencies or perils</p> Signup and view all the answers

    Which of the following best describes how insurance companies make payments more affordable for the insured?

    <p>By pooling clients' risks together</p> Signup and view all the answers

    In insurance, what does the term 'indemnifies' mean?

    <p>To reimburse for a covered loss</p> Signup and view all the answers

    Why do insurance policies hedge against the risk of financial losses?

    <p>To protect against potential damage or liability related losses</p> Signup and view all the answers

    What does the deductible in an insurance policy refer to?

    <p>The minimum amount that must be paid out-of-pocket by the insured</p> Signup and view all the answers

    What is the primary purpose of auto insurance based on the text?

    <p>To provide reassurance in case of accidents or vehicle damage</p> Signup and view all the answers

    Which insurance plan provides cash benefits equal to a percentage of the Face Amount starting at the end of the 6th policy year and every 2 years afterwards until the age of 100?

    <p>Whole Life Insurance Plan</p> Signup and view all the answers

    What additional feature do insurance companies offer nowadays besides life insurance plans?

    <p>Option to choose between Euro or US Dollar currency</p> Signup and view all the answers

    What is the purpose of an Endowment plan with educational benefits payable as per the text?

    <p>To pay educational benefits at the end of the policy term</p> Signup and view all the answers

    What is the main difference between Whole Life Insurance Plan and Insurance plan for women mentioned in the text?

    <p>Cash benefit equal to the face amount upon diagnosis of female-specific critical illnesses</p> Signup and view all the answers

    Which insurance plan guarantees payment to named beneficiaries upon the insured's death in exchange for premiums paid during their lifetime?

    <p>Whole Life Insurance Plan</p> Signup and view all the answers

    What is the purpose of a deductible in an insurance policy?

    <p>To reduce small claims and make policies less expensive</p> Signup and view all the answers

    Why might health insurance policies with lower deductibles have higher annual premiums?

    <p>To offset the higher costs of healthcare services</p> Signup and view all the answers

    What is a common requirement by mortgage companies related to home insurance?

    <p>Requiring proof of insurance coverage for property value</p> Signup and view all the answers

    In what situation do policies with very high deductibles tend to be less expensive?

    <p>When they reduce the number of small claims</p> Signup and view all the answers

    What is a key reason why auto insurance is important when buying or leasing a car?

    <p>To maintain the investment in the car</p> Signup and view all the answers

    How does having a lower deductible in a health insurance policy affect access to medical care?

    <p>It makes access to care more affordable throughout the year</p> Signup and view all the answers

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