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AFE Accredited Financial Examiner Questions and Answers

Questions 4

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

Options:

A.

The valuation of the mortgage loan portfolio, including a description of the valuation basis for mortgage loans and income recognition

B.

The recorded investment and interest past due on mortgages with interest more than 90 days past due

C.

The recorded investment and number of mortgages on which interest has been reduced, and the percent the interest was reduced

D.

Disclosures of impaired loans: The total recorded investment in impaired loans at the end of each period

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Questions 5

Special surplus funds are portions of surplus allocated or appropriated for a specific purpose. Special surplus funds usually are allocated voluntarily but also may be required by an insurance regulator. Which one the following is NOT an example of special funds:

Options:

A.

Group contingency reserve

B.

Group annuity contingency reserve

C.

Participation is separate accounts

D.

Guarantee Loan

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Questions 6

In _______________, an adjustment is based on experience of an individual risk during the term of the policy and is generally subject to maximum and minimum premium limits specified in the policy.

Options:

A.

Business recordkeeping

B.

Retrospective premium adjustments

C.

Premium transaction flow

D.

Adjusting premiums

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Questions 7

What seeks to identify and exploit existing or potential synergies in a company’s diverse business activities?

Options:

A.

Appropriate business decisions

B.

Holistic techniques

C.

Collateral strategies

D.

Reimbursement activities

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Questions 8

Tax Act states that:

Options:

A.

A life insurer is subject to an investment income tax of 15 percent on its ‘net Canadian life investment income

B.

A life insurer is subject to an investment income tax of 25 percent on its ‘net Canadian life investment income

C.

A life insurer is subject to an investment income tax of 35 percent on its ‘net Canadian life investment income

D.

A life insurer is subject to an investment income tax of 45 percent on its ‘net Canadian life investment income

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Questions 9

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

Options:

A.

Actuarial revenues

B.

Actuarial assets

C.

Actuarial liabilities

D.

Actuarial expenses

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Questions 10

Subsequent to the funding of a loan, the most common document/s obtained is/are:

Options:

A.

New or updated appraisals as evidence of the current value of the property

B.

Current financial statements on the borrower or the property, if the property is income producing, as evidence of the borrower’s continuing financial strength and of the property’s continuing ability to produce income

C.

Periodic inspection reports as evidence of the physical condition of the property

D.

Borrower’s financial statements

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Questions 11

Prepayment of a conventional mortgage loan, prior to its specified maturity, is discouraged through the general market acceptance of significant prepayment penalties. Often these penalties are calculated so that when prevailing market interest rates are:

Options:

A.

Lower than the rate on the loan being repaid the borrower has to make up the interest rate differential and the lender is essentially “made whole” for a potential loss of interest.

B.

Greater than the rate on the loan being repaid the borrower has to make up the interest rate differential and the lender is essentially “made whole” for a potential loss of interest.

C.

Equal to the rate on the loan being repaid the borrower has to make up the interest rate differential and the lender is essentially “made whole” for a potential loss of interest.

D.

Lower than the rate of interest being paid to the borrower has to make up the interest rate differential and the lender is essentially “made whole” for a potential loss of interest.

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Questions 12

Schedule H retains the identity of the Group Accident and Health and the Credit Accident and Health lines of business. However, in Schedule H the line of business designated as Other Accident and Health is subdivided to identify individual policies or elective options. Which of the following is/are out of those classifications?

Options:

A.

Collectively Renewable

B.

Cancelable

C.

Guaranteed renewable

D.

Non-renewable for market reasons only

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Questions 13

The operating ratio is the combined ratio less than the ratio of investment income, to earned premiums.

Options:

A.

True

B.

False

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Questions 14

What features a reserve that accumulates at company declared credited interest rates, which are periodically reset?

Options:

A.

Credited life insurance

B.

Periodic life insurance

C.

Premium life insurance

D.

Universal life insurance

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Questions 15

Many companies have developed an asset/liability management approach that is founded on understanding product liabilities. Mortgages meet the primary objective of maintaining:

Options:

A.

A tight asset/liability match

B.

A well-diversified core of investments

C.

A tight asset/liability match with a well-diversified core of investments.

D.

Real estate lending by insurance companies

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Questions 16

Most life insurance companies that are taxable in Canada fall into which one of the following classifications:

Options:

A.

Domestic life insurance companies

B.

Multinational life insurance companies resident in Canada

C.

Nonresident life insurance companies operating in Canada through a branch

D.

All of the above

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Questions 17

A change in _______ or its application is appropriate if the change results in a measurement that is equally or more representative of fair value in the circumstances.

Options:

A.

Valuation technique

B.

Value technique

C.

Investment approach

D.

Accounting corrections

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Questions 18

Claims adjusting involve:

Options:

A.

a field work

B.

an appraisal of risk subject to appropriate supervision

C.

approval by entity’s claims department

D.

All of the above

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Questions 19

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

Options:

A.

Risk of material misstatement

B.

detection of risk

C.

Both A & B

D.

Neither A nor B

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Questions 20

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?

Options:

A.

Conventional securities

B.

CMBS

C.

Subordinated securities

D.

Securitization

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Questions 21

According to Securities and Exchange Commission (SEC), “the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting shares, by contract, or otherwise” is called:

Options:

A.

Control

B.

Influence

C.

Activity

D.

Entitlement

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Questions 22

Insurance policies may be classified in which of the following categories?

Options:

A.

By policy planning

B.

By type of risks coverage

C.

By kind of insurance underwritten

D.

All of the above

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Questions 23

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?

Options:

A.

It embodies a probable future benefit which contributes to cash flow

B.

A particular entity can obtain this benefit

C.

The transaction giving rise to entity’s right to control the benefit has already occurred

D.

All of these

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Questions 24

Which risk assessment procedures are used to obtain an understanding of the entity and its environment, including its internal control?

Options:

A.

Inquiries of management

B.

Analytical procedures

C.

Observation

D.

All of the above

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Questions 25

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

Options:

A.

Endorsement

B.

Audit premiums

C.

Change plan

D.

Policyholder dividends

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Questions 26

What represent legal agreements between buyers or sellers and represent commitments to buy or sell financial instruments at specified dates and prices?

Options:

A.

Future contracts

B.

Present contracts

C.

Accounting contracts

D.

Financial contracts

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Questions 27

Which of the following is NOT of equity market sensitivities that are usually considered in dynamic hedging?

Options:

A.

Delta

B.

Vega

C.

theta

D.

alpha

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Questions 28

Which of the following is NOT the step of the transaction cycle?

Options:

A.

Evaluating and accepting expenses

B.

Issuing policies

C.

Billing and collecting premiums

D.

Home office and branch office recordkeeping

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Questions 29

It indicates the lender’s commitment to make a loan in accordance with the terms specified either in the borrower’s loan application or in the terms the company approves for the loan.

Options:

A.

Verification of deposits

B.

Commitment letter

C.

Appraisal

D.

Original note

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Questions 30

National Association of Insurance Commissioners stated that, has no effect on the valuation of securities for statutory accounting purposes, provided the amount of the collateral at least equals the required collateral.

Options:

A.

Safety act

B.

Investment security

C.

Insurance track

D.

Securities lending

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Questions 31

A lower net retention level typically would translate into a higher v\variability of reserves.

Options:

A.

True

B.

False

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Questions 32

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?

Options:

A.

Organizations and operations control

B.

System development control

C.

Access control

D.

Procedural control

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Questions 33

The profitability of an insurance entity on a statutory basis is generally gauged by:

Options:

A.

combined ratio and its operating ratio

B.

single module ratio and its operating ratio

C.

Net ratio

D.

Gross ration and actual ratio

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Questions 34

A premium deficiency relating to which insurance contracts indicate a probable loss on premiums yet to be earned.

Options:

A.

long duration

B.

premium policy

C.

short duration

D.

None of the above

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Questions 35

A metric is a measurement standard or yardstick for quantifying Asset/Liabilities Management (ALM) risk.

Options:

A.

True

B.

False

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Questions 36

Schedule rating:

Options:

A.

starts with a real standard, frequently the judgmental rate, and adjusts such standard rates according to an evaluation of greater or lesser exposure to risk.

B.

starts with an assumed standard, frequently the manual rate, and adjusts such standard rates according to an evaluation of greater or lesser exposure to risk.

C.

starts with an assumed standard, frequently the class rate, and adjusts such standard rates according to an evaluation of greater or lesser exposure to risk.

D.

starts with a real standard, frequently the individual rate, and adjusts such standard rates according to an evaluation of greater or lesser exposure to risk.

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Questions 37

Put Option is:

Options:

A.

A procedure that grants the holder the right but not the obligations to buy the main asset at the specified market price.

B.

A strategy that grants the holder the right to sell the underlying asset at the actual price.

C.

An instrument that grants the holder the right but not the obligations to sell the underlying asset at the specified strike price.

D.

An activity that grants the holder the right to put obligations to the underlying asset at the specified strike price.

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Questions 38

Internal Control is:

Options:

A.

the process of controlling the impact of risk related events on a company

B.

the process of planning the processes in order to avoid risk related events to a company

C.

the process of designing the models to avoid risk related events on a company

D.

All of the above

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Questions 39

When premium income less return premiums arising from policies issued or other contracts entered into reinsure other insurance entities that provide the related primary coverage are called:

Options:

A.

Indirect premiums

B.

Direct premiums

C.

Assumed reinsurance premiums

D.

Real reinsurance premiums

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Questions 40

To meet informational demands, internal management reporting will entail alternate views of the organization’s financial performance. These areas, or views, are including all of the following EXCEPT:

Options:

A.

organizational/ business unit (Profit center, department, distribution system etc)

B.

Dealing with processes; product or service lines (i.e. ordinary life insurance, pension services like deferred annuities, group risks such as life or accident and health, etc.)

C.

Dealing with similar risks or characteristics; and customer segment (i.e. individuals with specific levels of net worth, small businesses, large corporations, etc.)

D.

None of these

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Questions 41

Cash does include funds in transit, unless the deposit was prepared and sent to the bank. If the deposit was sent to the bank, it is considered cash and entered into the company’s books and is no longer in transit. Funds in transit not yet sent to the bank are entered:

Options:

A.

On a write-in line on the Assets page

B.

As a prepaid asset on the Assets page

C.

As a long term asset on the Assets page

D.

As a non-admitted asset on Asset page

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Questions 42

Loans on policies are valuable to the policyholders, and insurers encourage them to protect this feature by saving it for emergency use. There are two basic types of loans. In case of conventional premium loans:

Options:

A.

The insured makes a request for a loan. Since an emergency may very well have triggered this request, most companies will accept any form of notice such as a telephone call

B.

The maximum loan amount is frequently limited to the cash value of the policy plus the value of paid-up additions

C.

an insured has indicated in the insurance application that the policy is not to lapse for nonpayment of premiums so long as there is loan value adequate to cover unpaid premiums

D.

Loan can be created to pay policy loan interest if the policyholder-borrower does not pay it in cash

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Exam Code: AFE
Exam Name: Accredited Financial Examiner
Last Update: Oct 10, 2024
Questions: 286
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