AFE Sample Questions Answers

The method used to account for insurance and reinsurance contracts that do not transfer insurance risk is referred to as:

Identification and documentation of the controls and policies which address the risk management issues for each of the Standards is the necessary step for:

What is largely systematic that is; all insured risks are strongly affected by certain common influences, like developments in the capital markets?

A package of coverage including most property and liability coverage except workers’ compensation, automobile insurance and surely bonds is called:

The nature and extent of interest rate risk, credit risk, reinsurance risk and other significant risks should be disclosed is required for:

Asset/Liability Management recognizes that the financial impact of an asset or liability is mainly realized through its:

It refers to items such as interest paid on proceeds from the date due to the date actually disbursed, and to interest on premium deposit funds. These interest items are reflected by the increase in reserves or liability, from one year to the next. What is it?

What is based on statistical data and are large groups of similar risks can be classified by a few and easily identifiable characteristics and result in standard rates?

The financial statements of which accounts maintained by insurance company that must be presented separately from the insurance company’s general account business?

Financial statements of a self-sustaining foreign operation are translated using the current rate method whereby assets and liabilities are translated in the reporting currency using the exchange rate.

Which of the following is the significant requirement for ongoing regulatory reporting to the Office of the Superintendent of Financial Institutions (“OSFI”)?

It is defined as a debt restructuring whereby the insurer for economic or legal reasons related to borrower financial difficulties, grants a concession to the debtor that it would not otherwise grant.

The date on which the contract becomes effective is known as _.

At the end of each reporting period, unearned premiums are calculated and the change in unearned premiums is recorded as a change or debit to premium income.

Sales of securities are recorded as of the trade date. A receivable due from the broker is established in instances when a security has been sold, but the proceeds from the sale have not been received. Receivable for securities not received within settlement date are non-admitted, and are classified as other than invested assets.

What give the issuer the right to retire the bond at certain times, typically if prevailing market interest rates fall below the rate on the bond?

From what the most direct value-based requirements arise which are present in account value accumulation products?

The deduction must be based on identification of specific doubtful amounts and is limited to the maximum of doubtful debts identified in the year or a preceding year and 75 percent of the amount reported for statutory purposes.

Changes in payment procedures or changes in the definition of payment date for coding purposes may or may not affect loss reserve developments.

When no tax deductions are allowed if risks are not transferred, whereas premiums paid to insurers are tax deducible, this leads to the formation of:

________ are contracts with the insurer which provide for periodic payments over a specified period or in specified amounts. In most respects they are administered and accounted for much like supplementary contracts without life contingencies since there are no mortality or morbidity considerations that affect the amount to be paid.

Permanent stockholders’ equity represents an outside claim (from the permanent stockholders’ perspective) on the net assets of a subsidiary.

All operations under common control are combined, intercompany balances and transactions are eliminated and the effects of minority interests are recorded through:

Which are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance?

The entity transferring the risk is called the ceding entity and the entity to which the risk is transferred is called the assuming entity.

Accounting for escrow funds is difficult because of the large number of transactions related to such funds. A separate bank account or a trust bank account may be opened, with all escrow receipts deposited into it to prevent:

Which control includes the procedures for system design, including the acquisition of software packages, should encourage active participation by the accounting department and internal auditors?

Adjusting and Others (AO) reserves are often provided for by using the calendar year paid-to-paid method rather than the accident year paid-to-paid method used for Inflation in Defense & Cost Containment (DCC) reserves.

What are especially effective in investment strategy, because of the powerful risk management attributes they provide?

Financial Statements provide additional valuable information on the loans. Some of the more significant information provided includes EXCEPT:

Short-duration contracts provide insurance protection for fixed period and can cancel the contract at the end of any contract period.

What represents the amounts needed to provide for the estimated ultimate cost of settling claims relating to insured events that have occurred on or before a particular date?

Liabilities are recognized for known claims when sufficient information has been developed to indicate the involvement of a specific insurance policy.

Which of the following id NOT the kind of Insurance?

Accounting transactions that occur after the initial investment in a loan and during the period the loan is being serviced fall into two broad categories. Which one of the following is out of those categories?

Insurance entities usually write covered-call options because they consider the premium received for writing the options to be either:

What may leave more risk than a company should prudently assume due to the risk exacerbating features of a particular product?

These are securities whose underlying assets consist of commercial mortgage loans. The commercial loans are pooled, which brings diversification and liquidity to the asset class.

What are these?

Duration is a measure of the first-order interest rate sensitivity of a financial instrument.

In many states, a claims-made insurance policy is required to:

With fixed deferred annuities;

Which counterparts of duration and convexity are the first- and second order sensitivities of an equity market instrument to changes in the price of the underlying?

The auditor responds to risks of material misstatements due to fraud in which of the following ways?

Changes in existing policies that may result in additional premiums or return premiums, such as increases or decreases in coverage limits, in:

The private pools can fall in which two categories:

Monetary items and non-monetary items carried at market value are translated into the reporting currency at the rate of exchange in effect on the balance sheet date under:

Schedule rating:

Internal Control is:

The process of analyzing and projecting the trends of a company’s capital position given its current circumstances, its recent past, and its intended business plan under a variety of future scenarios is called:

Quantifies the sensitivity of the option price to changes in interest rates is known as:

The purest representation of asset/liability dynamics is instead through ____________, which measure assets and liabilities according to the cash flows they generate.

What method assumes that an entity’s historical experience relating to the timeliness of settlement will be predictive of future results?

Which of the following is Correct?

The name of each Subsidiary, Controlled and Affiliated (SCA) entity and percentage of ownership of common stock must be put to disclosure when:

The Appointed Actuary has a responsibility to express an opinion on the appropriateness of certain actuarially determined amounts in the financial statements.

Which of the following may NOT involve a high degree of management judgment and subjectivity and may present risks of material misstatement due to fraud?

To avoid double counting or omitting the effects of risks factors what should reflect assumptions that are consistent with those inherent in the cash flows?

The agents submit to the insurance entity a statement of all policies issued or due during the current month, and the net amount of the statement is subsequently to be paid in accordance with the agency agreement, is an account current of:

With the advent of adjustable rate mortgages, amortization schedules are adjusted periodically as dictated by the terms of the loan agreement. A _____________file is used to indicate when to adjust the rate. Most computer software systems can adjust amortization schedules by reminding the company of change dates, accept current rate adjustments, and to produce new schedules.

The maximum error in the population that the auditor is willing to accept is called:

______ is used when the rates for large or usual risks are established almost entirely by the skill and experience of the rate maker.

What funnels premium dollars into separate accounts which means segregated pools of bonds or stocks?

_______________ reserves for income tax purposes are referred to as maximum tax actuarial reserves (MTAR) and replace the actuarial liabilities used for accounting purposes in computing taxable income.

Admitted assets are those specifically prescribed by the NAIC Accounting Practices and Procedures Manual or prescribed or permitted by the various jurisdictions. An admitted asset is defined as having probable future economic benefits. It also has three essential characteristics. Which one of the following is out of those characteristics?

Direct serving loans method requires a system of good internal control and requires that the functions be split between the Accounting Department and the Investment Department. The Investment Department is responsible for promptly supplying the Accounting Department with:

The two major asset classes in which life insurers invest are:

Insurance entities establish

claims of the member companies.

What allows an entity to eliminate the reserve that was recorded for the claim, even if it exceeded the amount paid for the settlement?

Immunization theory says that:

The risk that the obligation will not be fulfilled and affects the value at which the liability is transferred is known as:

A mortgage servicer performs all of the servicing functions. The servicer remits all funds received on the serviced loans to the company on a monthly or other periodic basis and usually reports all transactions, including foreclosures and transactions related to foreclosed property. The contract between the company and servicer should provide that the:

Reduction for salvage is:

In which account current, for individual policies, the agent collects the premiums directly from the insureds, subtracts his or her commissions and remits the net premiums due to entity?

Which investments held by life insurance enterprises should be carried in the balance sheet at amortized cost?

What usually features a fixed premium that acts to levelize the policyholder’s outlay over the lifetime of the policy?

What is the act in which the main sections are for Canadian companies and for foreign companies?

_________________ is a special variation on a second mortgage. In this form, the new lender assumes the original or first mortgage and has the responsibility of collecting all payments and remitting a portion of these payments to the first lender.

Risk retention group is:

An attitude that includes a questioning mind and a critical assessment of audit evidence is called:

The amount that currently would be required to replace the service capacity of an asset is called:

For reinsurance assumed, the concepts analogous to attachment points and limits are referred to as

There are many different sources of CMBS. Conduits and aggregate pools generally consist of loans newly originated, purchased or held by investment bankers until the pool is large enough for an efficient execution. Government agencies such as the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corp. (FHLMC) are important sources of: