CIA Investment Strategies 3

Question 1

A Certified Insurance Appraiser reviewing an insurer's Schedule D filing would find information about:

Accepted Answer

The insurer's bond and stock investment holdings

Answer

Schedule D of the NAIC Annual Statement reports details of an insurer's bond and stock portfolios, including cost, fair value, and investment income.

Question 2

Which type of investment risk is associated with the inability to sell an asset quickly at its fair market value?

Accepted Answer

Liquidity risk

Answer

Liquidity risk arises when an investor cannot sell an asset at or near its fair value in a timely manner, which is especially problematic for insurers facing unexpected claim payouts.

Question 3

An insurance company invests in mortgage-backed securities (MBS). The MAIN prepayment risk associated with MBS is that:

Accepted Answer

Principal is returned faster than expected when interest rates fall, forcing reinvestment at lower yields

Answer

When interest rates drop, homeowners refinance their mortgages, returning principal to MBS investors early, who must then reinvest at the lower prevailing rates.

Question 4

The investment income ratio for an insurer is calculated as:

Accepted Answer

Net investment income divided by net premiums earned

Answer

The investment income ratio measures how much investment income an insurer earns relative to its premium volume, reflecting the contribution of investments to overall profitability.

Question 5

Under statutory accounting principles (SAP), bonds in an insurance company's portfolio that are classified as 'held-to-maturity' are generally carried at:

Accepted Answer

Amortized cost

Answer

Under SAP, investment-grade bonds intended to be held to maturity are carried at amortized cost, smoothing out market value fluctuations from the balance sheet.

(CIA) Certified Insurance Appraiser Practice Test

(CIA) Certified Insurance Appraiser Practice Test

CIA Investment Strategies 3