Chapter 1- Basic Principles

Question 1

Actuarial department

Answer 1

calculates policy rates, reserves, and dividends.

Question 2

an insurer whose principal office and domiciled location is outside the country.

Answer 2

Alien Insurer

Question 3

An insurer who has received a certificate of authority from a state’s department of insurance authorizing them to conduct insurance business in that state.

Answer 3

Admitted Insurer (or authorized insurer)

Question 4

broker

Answer 4

A __ represents themselves and the insured (i.e., the client or customer).

Question 5

an issuer established and owned by a parent firm for the purpose of insuring the parent firm’s loss exposure.

Answer 5

Captive Insurer

Question 6

is a license issued to an insurer by a department of insurance (or equivalent state agency), which authorizes that company to conduct insurance business in that particular state.

Answer 6

Certificate of Authority

Question 7

Claims Department

Answer 7

The ___ ___ is responsible for processing, investigating, and paying claims.

Question 8

is the amount of earnings paid to policy owners as dividends after the insurance company sets aside funds required to cover reserves, operating expenses, and general business purposes.

Answer 8

Divisible Surplus

Question 9

is an insurer with its principal or home office in a state where it is authorized.

Answer 9

Domestic Insurer

Question 10

is an insurer with its principal office or domicile location in a state different from the state it is transacting insurance business.

Answer 10

Foreign Insurer

Question 11

Fraternal Benefit Societies

Answer 11

• mutual company
• nonprofit religious, ethnic or charitable organizatins that provide insurance solely to their members

Question 12

primarily provide policies with small face amounts & premiums are paid weekly

Answer 12

Industrial Insurer
(home service or debit insurers)

Question 13

The transfer of risk through the pooling or accumulation of funds.

Answer 13

Insurance

Question 14

is the customer receiving insurance protection under an insurance policy.

Answer 14

Insured

Question 15

The ___ is the insurance company.

Answer 15

Insurer

Question 16

Lloyds of London

Answer 16

is NOT an insurer, but a group of individuals and companies that underwrite unusual insurance.

Question 17

is an insurance company or independent agent that provides a one-stop-shop for businesses or individuals seeking coverage for all their insurance needs. For example, many large insurers offer individual policies for automobile, homeowner, long-term care, life, and health insurance needs.

Answer 17

Multi-line Insurer

Question 18

are insurance companies characterized by having no capital stock, being owned by its policy owners, and usually issue participating insurance.

Answer 18

Mutual Insurance Company

Question 19

is an insurer who has not received a certificate of authority from a state’s department of insurance authorizing them to conduct insurance business in that state.

Answer 19

Non-admitted Insurer (or unauthorized insurer)

Question 20

typically issued by stock companies, do not allow policyowners to participate in dividends or electing the board of directors.

Answer 20

Nonparticipating policy

Question 21

Participating Plan

Answer 21

is an insurance policy under which the policy owners share in the company’s earnings through receipt of dividends and also elect the company’s board of directors.

Question 22

are companies owned by private citizens or groups that offer one or more insurance lines.
- NOT government-owned.

Answer 22

Commercial (Private) Insurer

Question 23

is an unincorporated organization in which all members insure one another.

Answer 23

Reciprocal Insurer

Question 24

is the acceptance by one or more insurers of a portion of the risk underwritten by another insurer who has contracted for the entire coverage.

Answer 24

Reinsurance

Question 25

A ___ is a company that provides financial protection to insurance companies.
- handle risks that are too large for insurance companies to handle on their own and make it possible for insurers to obtain more business than they would otherwise be able to.

Answer 25

Reinsurer

Question 26

a group-owned liability insurer which assumes and spread product liability and other forms of commercial liability risks among its members.
- insure people in the same business, occupation or profession (dentists, pharma

Answer 26

Risk Retention Group

Question 27

establishes a self-funded plan to cover potential losses instead of transferring the risk to an insurance company.

Answer 27

Self-Insurers

Question 28

an insurance company owned and controlled by a group of stockholders (or shareholders) whose investment in the company provides the safety margin necessary in the issuance of guaranteed, fixed premium, nonparticipating policies.

Answer 28

Stock Insurance Company

Question 29

They offer coverage for substandard or unusual risks not available through private or commercial carriers (nontraditional insurance)

Answer 29

Surplus Lines Insurance

Question 30

the department within an insurance company responsible for reviewing applications, approving or declining applications, and assigning risk classifications.

Answer 30

Underwriting Department

Question 31

are the accounting measurement of an insurer’s future obligations to its policyholders. They are classified as liabilities on the insurance company’s accounting statements since they must be settled at a future date.

Answer 31

Reserves

Question 32

indicates a company’s ability to make unpredictable payouts to policyowners.

Answer 32

Liquidity