CLU Exam 1 CH 12 Exam 2023-Solved

In addition to needing surplus to meet minimum statutory capital requirements, life insurance companies traditionally have needed surplus beyond minimum statutory requirements in order to adequately absorb unexpected upward fluctuations in claims. - ANSWER-True Immunization means that a financial risk has been effectively neutralized by having losses in one part of the business offset by gains somewhere else when market conditions and interest rates change. [1] - ANSWER-True Duration matching is an attempt to select asset durations that will closely match an insurer's cash flows from assets to its cash flows needed to satisfy liabilities. [1] - ANSWER-True The primary sources of additional capital for most life insurance companies are traditional capital markets and the effective use of reinsurance. [2] - ANSWER-False The primary source of additional capital for most life insurance companies is internal and comes from favorable deviations of actual experience from assumed experience on seasoned life insurance policies. External sources of capital include the traditional capital markets and the effective use of reinsurance. Interest earnings greater than the rate assumed in setting premiums usually contribute the largest portion of insurer gains for policies that develop cash values. [2] - ANSWER-True Any transaction that increases assets more than liabilities or decreases liabilities to a greater extent than assets is a source of surplus. [2] - ANSWER-True Demutualization is an option for mutual insurance companies wishing to expand their access to capital markets. [2] - ANSWER-True Financing company growth generally presents the life insurer's largest internal demand for capital, regardless of whether it is a mutual or a stock company. [2] - ANSWER-True Each year a mutual company returns the surplus gains for that year in dividends to policyowners. [3] - ANSWER-False Most companies' minimum objective is to continue the current dividend scale, which usually implies a larger absolute distribution of surplus each year than that of the preceding year. [3] - ANSWER-True There is little justification in theory for a single-payment extra dividend. [3] - ANSWER-False