205 Questions
What is the main issue that can arise due to information asymmetry in insurance transactions?
Adverse selection
Which situation best describes moral hazard in insurance?
Excessive risk-taking or reckless behavior by one party after the transaction.
What is a common solution to the problem of adverse selection in insurance?
Medical examination
In an insurance context, what does RBC2 stand for?
Risk Based Capital 2
Which ratio is calculated by adding underwriting expenses and claims expenses then dividing by net earned premiums?
Combined Operating Ratio
What does an insured individual engaging in reckless driving behavior after purchasing vehicle insurance represent?
Moral hazard
What is the minimum capital requirement for insurance companies in 2022 according to the text?
P1,300,000,000
What type of companies fall under the regulation of the Insurance Commission (IC) as per the text?
Reinsurance Companies
What is the RBC Ratio Requirement according to the text?
RBC2 Ratio ≤ 50% of T1 Capital
What is the Paid-up capital required for 'New Business' as mentioned in the text?
At least P1,000,000,000
Which organization's requirement is at least P500,000,000 for its minimum capital according to the text?
Health maintenance organizations
What is the main difference between Capital Ratio and RBC2 Ratio?
Capital Ratio focuses on net earned premium, while RBC2 Ratio focuses on gross written premium.
How is the Expense Ratio calculated in insurance financial statement analysis?
By dividing the underwriting expenses by the net earned premium.
What does a Loss Ratio of 102.63% indicate in insurance financial analysis?
Inadequate underwriting practices leading to a loss exceeding premiums earned.
What does a Combined Operating Ratio of 139.47% suggest about an insurance company's performance?
Significant financial losses due to high operating and claims expenses.
How does Insurance Margin differ from Expense Ratio, Loss Ratio, and Combined Operating Ratio in insurance financial analysis?
Insurance Margin represents the company's profit margin after deducting various expenses.
Which ratio is most crucial for assessing an insurance company’s underwriting effectiveness?
Loss Ratio
What does the Expense Ratio measure in insurance financial statement analysis?
The ratio of underwriting expenses to net earned premiums
In insurance financial analysis, what does a Loss Ratio of 36.84% indicate?
High expenses compared to net earned premiums
What aspect of an insurance company's performance does the Combined Operating Ratio primarily assess?
Expense management efficiency
If an insurance company has an Insurance Margin of 102.63%, what does this suggest about its financial situation?
Losses being incurred on its underwriting activities
When calculating the Loss Ratio in insurance financial statement analysis, what is considered a key component?
Net earned premiums
How does the Expense Ratio differ from the Combined Operating Ratio in insurance financial analysis?
Expense Ratio focuses on expense efficiency, while Combined Operating Ratio assesses overall profitability.
What is a common outcome of information asymmetry in insurance transactions?
Adverse Selection
Which situation best exemplifies moral hazard in insurance?
An individual driving recklessly after purchasing vehicle insurance
What is a common solution to moral hazard in insurance?
Increased premium for certain actions
How is the Expense Ratio typically calculated in insurance financial statement analysis?
Underwriting Expenses divided by Net Earned Premiums
What does an underwriting effectiveness ratio focus on in insurance financial analysis?
Operational Efficiency
Which ratio combines underwriting expenses and claims expenses then divides them by net earned premiums?
Combined Operating Ratio
What falls under the regulation of the Insurance Commission (IC) according to the text?
Insurance and Reinsurance companies
What is the minimum Paid-up capital required for 'Microinsurance' as per the text?
At least P500,000,000
What does a Risk-based capital (RBC) Ratio of 130% suggest about an insurance company's financial standing?
The company has an adequate capital buffer
What is the new minimum Paid-up capital requirement for 'New Business' as mentioned in the text?
P900,000,000
What is the purpose of the Risk-based capital (RBC) Requirement in insurance regulation?
To ensure that insurance companies have adequate capital to cover risks
What is the purpose of the Combined Operating Ratio in insurance financial analysis?
Assess the profitability of underwriting operations
In insurance financial statement analysis, what does a Loss Ratio of 102.63% indicate?
Excessive claims expenses compared to net earned premiums
How is the Expense Ratio calculated in insurance financial statement analysis?
By dividing underwriting expenses by net earned premiums
What does an Insurance Margin of 139.47% suggest about an insurance company's performance?
High underwriting profitability
Which situation best exemplifies moral hazard in insurance?
Policyholder intentionally causing damage to claim insurance money
What aspect of an insurance company's performance does the Loss Ratio primarily assess?
Claims management effectiveness
What is the primary difference between adverse selection and moral hazard in insurance?
Adverse selection occurs before a transaction due to information asymmetry, while moral hazard occurs after a transaction when one party takes excessive risk.
How can insurance companies address adverse selection in insurance transactions?
By conducting medical examinations and gathering additional information.
What is the purpose of a deductible clause in insurance policies?
To reduce the financial burden on insurance companies by making policyholders share a portion of the risk.
In insurance financial statement analysis, what does the Combined Operating Ratio assess?
Underwriting expenses and claims expenses relative to net earned premiums.
What is the main consequence of information asymmetry in insurance transactions?
Adverse selection, leading to undesirable results for both parties involved.
How does a Loss Ratio differ from an Expense Ratio in insurance financial statement analysis?
Loss Ratio measures claims expenses relative to net earned premiums, while Expense Ratio assesses overall expenses compared to premiums.
What is the purpose of the Risk-based capital (RBC) Requirement in insurance regulation?
To assess an insurance company's financial stability based on its risk exposure
What does a Loss Ratio of 55% suggest about an insurance company in financial analysis?
The company is profitable and paying out reasonable claims
What aspect of an insurance company's performance does the Insurance Margin primarily reflect?
Underwriting profitability
In the context of insurance regulation, what does a Capital RBC2 Ratio below 100% indicate?
The insurance company is at a high risk of insolvency
How does the minimum capital requirement for Microinsurance companies differ from that of New Business as per the text?
New Business requires a higher capital amount than Microinsurance companies
In insurance transactions, adverse selection occurs after the transaction has taken place.
False
The Deductible clause is a common solution to moral hazard in insurance.
True
The Expense Ratio in insurance financial analysis includes underwriting expenses and claims expenses divided by net earned premiums.
True
RBC2 stands for Risk-Based Capital 2 in insurance financial statement analysis.
False
Insurance Margin reflects the underwriting effectiveness of an insurance company in financial analysis.
False
A Loss Ratio of 55% indicates that an insurance company is operating at a loss in financial analysis.
False
The RBC2 Ratio is a simpler version of the Capital Ratio in insurance financial statement analysis.
False
The Net Earned Premium (NEP) is calculated by deducting Reinsurance Expense from the Gross Written Premium (GWP).
True
An Expense Ratio of 139.47% in insurance financial analysis indicates high efficiency in managing expenses.
False
A Loss Ratio of 102.63% suggests that claims expenses exceed the net earned premium in insurance financial analysis.
True
A Combined Operating Ratio of 36.84% in insurance financial analysis indicates high profitability for the insurance company.
False
The Insurance Margin is calculated by combining the Expense Ratio and the Loss Ratio.
False
The Insurance Commission (IC) falls under the Department of Finance (DOF).
True
The minimum capital requirement for insurance companies in 2022 is P1,200,000,000.
False
Microinsurance companies are required to have a minimum paid-up capital of at least P600,000,000.
False
The RBC2 Ratio Requirement is that the RBC2 Ratio should be less than 100%.
False
Local Corporations or Foreign branches do not fall under the regulation of the Insurance Commission (IC).
False
An individual who drives carelessly after purchasing vehicle insurance is an example of moral hazard in insurance transactions.
True
Adverse selection occurs when undesirable results arise due to asymmetric information after the transaction has taken place.
False
The Risk-based capital (RBC) Ratio indicates the financial standing of an insurance company, with a higher ratio suggesting a stronger financial position.
True
Insurance Margin is calculated by combining Underwriting Expenses and Claims Expenses and dividing them by Net Earned Premium.
False
The Net Earned Premium is calculated by deducting Reinsurance Expense from the Gross written premium.
False
The Deductible Clause is a common solution to addressing adverse selection in insurance transactions.
False
A Loss Ratio of 102.63% in insurance financial statement analysis indicates high profitability for the insurance company.
False
Expense Ratio measures the efficiency of managing expenses in insurance financial statement analysis.
True
In insurance financial statement analysis, a Combined Operating Ratio of 139.47% suggests efficient management of underwriting and claims expenses.
False
The Insurance Margin is calculated by dividing the Underwriting Expense and Claim Expense by the Net Earned Premium.
True
An Expense Ratio of 36.84% in insurance financial statement analysis indicates high efficiency in managing expenses.
True
The Capital Ratio is less complex than the RBC2 Ratio in insurance financial statement analysis.
True
The Risk-Based Capital (RBC) Requirement is optional for insurance companies to comply with.
False
The Insurance Commission (IC) regulates only Health maintenance organizations and Mutual Benefit Associations.
False
The minimum Paid-up capital required for 'New Business' is P900,000,000 according to the text.
False
The RBC2 Ratio Requirement states that T2 Capital should be less than 50% of T1 Capital.
False
Microinsurance companies are required to have a minimum paid-up capital of at least P400,000,000.
False
The premium of an insurance policy is determined based on the insured's creditworthiness.
True
Policy limit is the minimum amount that an insurer will pay under a policy for a covered loss.
False
Higher policy limits often come with lower premiums in insurance policies.
False
The three critical components of most insurance policies are deductible, premium, and coverage limit.
False
Insurance companies regulate Health Maintenance Organizations and Insurance Margin Associations.
False
In insurance financial analysis, a Combined Operating Ratio below 100% suggests high efficiency in managing underwriting and claims expenses.
True
Health insurance policies with lower deductibles tend to have lower annual premiums compared to policies with higher deductibles.
False
Home insurance is not required by mortgage companies when financing a residential real estate transaction.
False
Auto insurance is unnecessary when purchasing or leasing a car.
False
Deductibles are always applied per policy, not per claim, in insurance policies.
False
A policyholder is not required to pay any deductible out of pocket before the insurer pays a claim.
False
High deductible policies are typically less expensive due to the increased number of small claims resulting from the lower out-of-pocket expense.
False
Insurance is a contract where an individual pays an insurance company for financial reimbursement in case of losses.
False
Insurance policies are not used to hedge against the risk of financial losses.
False
The deductible, policy limit, and premium are not core components of most insurance policies.
False
The main role of insurance is to help people financially protect themselves against expected events.
False
Most people do not have any kind of insurance for their car, house, or life.
False
Life, health, homeowners, commercial building, and auto are not the most common forms of insurance.
False
Life insurance guarantees payment to named beneficiaries when the insured dies in exchange for the premiums paid by the policyholder during their lifetime.
True
Endowment plans with educational benefits payable are one of the features offered by insurance companies in addition to life insurance.
True
Whole Life Insurance Plans provide cash benefits starting at the end of the 5th policy year and every 3 years afterward until the age of 90.
False
Insurance plans for women offer cash benefits equal to the face amount upon diagnosis of any covered female-specific critical illnesses and surgeries.
True
Hospital income plans provide coverage for 5 years and offer a 25% return of premium if the insured outlives the coverage period.
False
Insurance companies only offer life insurance plans and no other types of insurance.
False
An insurance plan with cash benefits allows the policyholder to enjoy the face amount when the policy matures, even if they are deceased.
False
The younger you are when you get insurance, the higher the premium will be.
False
Travel insurance only covers losses associated with domestic travel, not international travel.
False
Insurance policies usually consist of the premium, policy limit, and co-payment.
False
Single pay front-end load insurance plans provide protection until age 88.
True
It is advisable to religiously pay insurance premiums to avoid any lapse that may impact the benefits of the insurance plan.
True
Insurance policies are primarily used to protect against losses that may result from damage to a third party.
False
Life insurance is not considered one of the most common forms of insurance.
False
The Deductible, policy limit, and premium are core components of most insurance policies.
True
Health insurance is not mentioned as one of the most common forms of insurance.
False
The key role of insurance is to help people financially protect themselves against predictable events such as routine medical check-ups.
False
Insurance companies do not pool clients' risks to make payments more affordable for the insured.
False
Endowment plans with educational benefits payable are not typically offered by insurance companies in addition to life insurance.
False
Travel insurance covers losses associated with both domestic and international travel.
False
Single pay front-end load insurance plans provide protection until age 70.
False
Insurance companies require borrowers to have insurance coverage for the full or fair value of a property to finance a residential real estate transaction.
True
Health insurance policies with higher deductibles result in more small claims due to lower annual premiums.
False
Auto insurance is not necessary to protect a car investment when buying or leasing a vehicle.
False
The three critical components of most insurance policies are premium, policy limit, and deductible.
True
Insurance companies determine premiums based on the insured individual's credit score only.
False
Policy limit refers to the minimum amount that an insurer will pay under a policy for a covered loss.
False
Higher policy limits often come with lower premiums in insurance policies.
False
Whole Life Insurance Plans provide cash benefits starting at the end of the 5th policy year and every 3 years afterward until the age of 90.
False
Health insurance policies with lower deductibles tend to have lower annual premiums compared to policies with higher deductibles.
False
An endowment plan with educational benefits payable is not a type of insurance offered by insurance companies.
False
A Whole Life Insurance Plan provides cash benefits starting at the end of the 5th policy year.
False
Insurance plans for women do not provide cash benefits upon diagnosis of any covered female-specific critical illnesses and surgeries.
False
Hospital income plans provide coverage for 15 years and offer a 25% return of premium if the insured outlives the coverage period.
False
Life insurance policies guarantee that the insurer pays a sum of money to named beneficiaries when the insured dies in exchange for the premiums paid by the policyholder during their lifetime.
True
Insurance companies do not offer any type of insurance plan other than life insurance.
False
An insurance policy with back-end load typically requires the policyholder to pay a fee upon purchasing the policy.
False
Travel insurance is primarily designed to protect against financial losses associated with traveling abroad.
False
The premium for an insurance policy tends to be lower if the policy is purchased at a younger age.
True
Insurance policies with cash benefits allow the policyholder to receive the face amount only after their death.
False
Paying insurance premiums regularly is crucial to avoid any default that may impact the benefits of the insurance plan.
True
The older you are when you get an insurance policy, the lower the premium tends to be.
False
What is the main purpose of insurance as described in the text?
To protect against financial losses from covered events
In insurance, what does the policyholder receive from the insurance company?
Loss compensation and financial protection
What is the primary reason insurance companies pool clients' risks according to the text?
To make payments more affordable for the insured
What are the core components of most insurance policies?
Deductible, policy limit, and premium
What does a Loss Ratio primarily assess in insurance financial analysis?
Claims expenses compared to net earned premium
Which type of insurance is NOT mentioned as one of the most common forms of insurance in the text?
Commercial building insurance
What is the main role of insurance according to the text?
To provide protection against unpredictable events
Which factor primarily influences the premium of an insurance policy as mentioned in the text?
Creditworthiness of the insured or business
What does the policy limit define in an insurance policy?
The maximum amount the insurer will pay for a covered loss
What is typically true about insurance plans with higher policy limits according to the text?
They carry higher premiums
Which statement accurately describes the calculation of premium in insurance policies?
It varies with the insurance company's operating expenses
How does understanding the components of an insurance policy help in selecting the best policy?
By allowing for a better match of policy features with individual needs
What does the face value of a general life insurance policy represent?
The maximum amount the beneficiary will receive upon death of the insured
How does a high deductible impact the cost of an insurance policy?
Reduces the premium but increases out-of-pocket expenses
What type of insurance policy is recommended for individuals with chronic health issues?
Policies with lower deductibles for better access to medical care
Why do mortgage companies typically require home insurance from borrowers?
To protect against damage or theft of the property
What is a crucial consideration when purchasing or leasing a car?
Protecting the investment through auto insurance
Which type of insurance is primarily designed to protect against financial losses associated with traveling abroad?
Travel Insurance
What does a Whole Life Insurance Plan provide starting at the end of the 6th policy year and every 2 years afterwards until the age of 100?
Cash benefit equal to the face amount
What is the main feature of an Insurance plan for women mentioned in the text?
Cash benefit equal to the face amount upon diagnosis of female-specific critical illnesses
What is the primary coverage period provided by a Hospital income plan as mentioned in the text?
10 years with a 50% return of premium
Which type of insurance plan offers cash benefit equal to a percentage of the Face Amount starting at a specific policy year until age 100?
Whole Life Insurance Plan
In addition to life insurance, which insurance plan promises cash benefit upon diagnosis of female-specific critical illnesses and surgeries?
Insurance plan for women
When does a Whole Life Insurance Plan start providing cash benefit equal to a percentage of the Face Amount?
At the end of the 6th policy year and every 2 years afterwards until age 100
Which component is NOT mentioned as part of most insurance policies according to the text?
Co-pay
What is a recommended strategy regarding the age at which insurance should be obtained?
Get insurance at a younger age for lower premiums
What is advised regarding the payment of insurance premiums based on the text?
Religiously pay premiums to avoid policy default
Which insurance plan allows the policyholder to enjoy the face amount when it matures, even if they are alive?
Endowment Plan
What is a key benefit of a single pay back-end load investment-linked insurance plan according to the text?
Lower initial fee upon purchase
What distinguishes travel insurance from other types of insurance?
It provides protection against travel-related losses and costs
What is the policy limit in an insurance policy?
The maximum amount the insurance company will pay for a covered loss
How is an insurance policy's premium determined?
By the insured's risk profile and creditworthiness
What role does the deductible play in an insurance policy?
It is the amount the insured has to pay before the insurer covers a claim
Why do higher policy limits usually come with higher premiums?
To compensate for the increased potential payout by the insurer
What does an insurance company consider when determining an individual's premium?
Their risk profile and creditworthiness
Which component of an insurance policy determines how much an insurer will pay under that policy for a covered loss?
Policy limit
What does a life insurance policy guarantee according to the text?
Payment to named beneficiaries upon the insured's death
What type of 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?
Whole Life Insurance Plan
Which insurance plan provides cash benefits equal to the face amount upon diagnosis of any covered female-specific critical illnesses and surgeries?
Insurance plan for women with critical illnesses coverage
What is the primary feature of an Endowment plan with educational benefits payable?
Payment for education expenses at specific intervals
In insurance policies, what does a Hospital income plan offer after the coverage period?
Return of premium if the insured outlives coverage period
What distinguishes a Whole Life Insurance Plan from other insurance plans mentioned in the text?
Cash benefit starting at the end of the 6th policy year
What is the primary purpose of insurance according to the text?
To help people financially protect themselves against life's uncertainties
Which components make up most insurance policies according to the text?
Deductible, premium, and policy limit
How do insurance companies make payments more affordable for the insured?
By pooling clients' risks
What do insurance policies hedge against according to the text?
The risk of financial losses and property damage
Which factor primarily helps in making insurance payments more affordable for the insured?
Pooling clients' risks
What is the core purpose of an insurance contract according to the text?
To provide financial protection and reimbursement against losses
What term is used to describe the maximum amount an insurer will pay to a beneficiary upon the death of the insured?
Face value
In insurance, why are policies with very high deductibles typically less expensive?
They result in fewer small claims
What type of insurance is recommended for individuals with chronic health issues according to the text?
Health insurance
Which insurance policy component must be satisfied by the policyholder before the insurer pays a claim?
Deductible
What is the primary purpose of health insurance policies with lower deductibles according to the text?
Access to medical care
Which type of insurance is typically mandated by mortgage companies for property owners?
Home Insurance
Which type of insurance plan provides protection until age 88 with a single pay and front-end load?
Whole life insurance
What is the primary reason provided in the text for getting insurance at a younger age?
To receive lower premiums
In insurance, what are the core components mentioned to make up most insurance policies according to the text?
Deductible, policy limit, premium
Why is it advisable in the text to religiously pay the insurance premiums?
To maintain the benefits of the insurance plan
What is recommended in the text to be included in an insurance plan for you to enjoy the face amount when it matures while you are still alive?
Cash benefits
What is emphasized in the text regarding the travel insurance policy?
"It covers costs associated with traveling"
Study Notes
- Information asymmetry in insurance transactions can lead to adverse selection and moral hazard.
- Adverse selection occurs when one party has more information before the transaction, like a person with cancer buying life insurance.
- Solutions to adverse selection include medical examinations and gathering other relevant information.
- Moral hazard happens when one party takes excessive risks after the transaction, like driving recklessly after buying vehicle insurance.
- Solutions to moral hazard include implementing a deductible clause and increasing premiums for certain actions.
- Common ratios used in financial statement analysis for insurance companies include expense ratio, loss ratio, combined operating ratio, and insurance margin.
- Insurance regulations set by the Insurance Commission under the Department of Finance dictate minimum capital requirements, with new businesses needing at least P1,000,000,000 in paid-up capital.
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