DOC PREVIEW
UIUC FIN 431 - Fin 431 - Exam

This preview shows page 1-2 out of 6 pages.

Save
View full document
View full document
Premium Document
Do you want full access? Go Premium and unlock all 6 pages.
Access to all documents
Download any document
Ad free experience
View full document
Premium Document
Do you want full access? Go Premium and unlock all 6 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 6 pages.
Access to all documents
Download any document
Ad free experience

Unformatted text preview:

UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGNCollege of Business DEPARTMENT OF FINANCEFirst Exam – Form BFinance 431 Name:_______________________ Spring, 2008 Maximum Number of Points: 30For this exam, you may use either the State Farm Car Policy we used in Finance 230 or the Personal Auto Policy included as Appendix B in the text. To make sure you are graded fairly, please circle the policy you are using for this exam:State Farm Car Policy Personal Auto PolicyTrue/False and Multiple Choice Questions - Circle the appropriate answer (1 point each). 1. Pain and suffering is a form of property damage. F2. Unallocated loss adjustment expenses cannot be assigned to a specific claim. T3. Based on the Herfindahl scale, the insurance industry is not Thighly concentrated.4. A loss under the homeowners medical payments coverage Fis a first party claim.5. Accident year statistics include losses that occurred in a Tgiven calendar year.6. An insurer that markets tries to encourage agents to sell its policies by offering a higher commission than its competors is exhibiting which of the following Philosophies of Marketing Management?A. Production ConceptB. Product ConceptC. Sales ConceptD, Marketing ConceptE. Market Challenger7. Progressive Corporation is now marketing pet insurance policies to its current insureds. Which form of growth strategy does this represent?A. Market pentrationB. Market developmentC. Product developmentD. Diversification8. A claims adjuster obtained a parent’s release and indemnity agreement for a bodily injury claim involving a 10 year old child who was injured when one of its auto insurance policyholders caused an accident. After the child turns 18, he tries to sue the policyholder for additional damages. Which of the following would apply in this case? (Indicate all that apply.)A. The child cannot sue the policyholder because the company obtained a release B. The child would have to sue his parents for any additional damagesC. The insurance company would not have to pay any additional damages as it obtained a release.D. If the child were to win an additional award, the insurance company would pay it, but could sue the parents to recover any additional amounts it has to pay. E. None of the above9. High winds blow a tree in your front yard over and it lands on your car. Both the tree andcar are damaged. In this situation, which policy will pay for this loss?A. Only your Personal Auto Policy (or State Farm Car Policy) will payB. Only your Homeowners 3 Special Form will payC. Both policies will payD. Neither policy will pay10. On October 15, 2006, an auto insurance policyholder was involved in an accident that injured a pedestrian. The policyholder reported the accident on October 16, 2006. On November 1, 2006, the company established a loss reserve for $4,000. On April 23, 2007, the adjuster increased the reserve to $10,000. On February 13, 2008, the company settled the claim for $8,500 and releases the reserve. What is the accident year 2006 incurred loss for this claim as of the end of 2008?A. -$1,500B. $0 C. $4,000 D. $6,000E. $8,500F. $10,000G. $14,000H. None of the aboveShort Answer/Calculation Questions (2 points each).11. St. Paul-Travelers writes a liability insurance policy with a $1,000,000 policy limit for a policyholder. St. Paul-Travelers has a Quota Share reinsurance policy that cedes 40% of the each loss and a Per-risk Excess reinsurance policy for $500,000 excess of $100,000. (The quota share policy inures to the benefit of the per-risk excess policy). If the policyholder were held liable for $800,000 for a claim, indicate how the loss would be split:Policyholder 0St. Paul-Travelers 100,000Quota Share Reinsurer 320,000Per-risk Excess Reinsurer 380,00012. Lightning claims caused $882 million in losses for the insurance industry in 2006 and areincreasing at a rate of over 20% per year, primarily due to policyholders owning more electronic equipment and more expensive equipment. The average lightning claim was $3,446 in 2006. The commonly used surge protector power strips are not effective in preventing these losses. In order to avoid lightning losses, a homeowner needs to install a surge arrestor on the main electical service panel; installing such a device can cost about $100. How can insurers get policyholders to make this investment to reduce lightning losses? This could be answered a variety of ways. One good answer would be to provide a premium discount to any policyholder who has, or installs, a surge arrestor.13. Calculate the indicated rate level change based on the following information:Actual Loss Ratio 76%Expected Loss Ratio 82.5%-7.88%14. Calculate gross premium based on the following information:Loss frequency 5%Loss severity $3,500Fixed expenses 60Variable expenses (including profit) 18% 286.5915. A homeowners insurance staff underwriter is trying to help the company avoid morale hazard in its book of business. What underwriting policies would be effective in meeting this objective?To avoid morale hazard, you need to avoid situations where policyholders can be indifferent about losses occurring. Requiring significant deductibles or coinsurance would be one way to reduce morale hazard. Another would be to reward policyholders who do not have claims in some way, such as lower premiums.16. An auto insurance company has the following experience for the year 2007:Unearned premium reserve 12/31/06 56,700,000Loss reserve 12/31/06 75,800,000Written premium during 2007 72,900,000Paid losses during 2007 48,200,000Unearned premium reserve 12/31/07 61,800,000Loss reserve 12/31/07 78,100,000Calculate the calendar year 2007 loss ratio for this company..74517. An insurance company has the following experience for 2007:Written Premium $425 millionEarned Premium 406 "Incurred Losses 258 "Loss Adjustment Expenses 57 "Underwriting Expenses 108 "Net Investment Income 43 "Realized Capital Gains 8 "Unrealized Capital Gains 2 "Calculate the Operating Ratio using Net Investment Income plus Realized and Unrealized Capital Gains and the Trade Basis Combined Ratio..899For questions 18-20, use the Cumulative Loss Payment data listed below to fill in the missingdata on the next tables. Assume that there is no further loss development after 48 months.Cumulative Loss Payments(000 omitted)Development Age (Months)Accident Year 12 24 36


View Full Document
Download Fin 431 - Exam
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view Fin 431 - Exam and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view Fin 431 - Exam 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?