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AFE Exam Dumps - Accredited Financial Examiner

Question # 4

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:

A.

Control

B.

Influence

C.

Activity

D.

Entitlement

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Question # 5

The organizations in which the ownership and control of operations are vested in the policyholders are known as:

A.

Private entities

B.

Public entities

C.

Reciprocal entities

D.

Mutual entities

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Question # 6

Asset and liability management is:

A.

An approach of matching assets and liabilities that requires a correct mix of long and short term investments.

B.

An approach of mix assets and liabilities in a financial statement that requires specific long and short term revenues.

C.

An approach of mix assets and liabilities in a financial statement that requires specific long and short term revenues.

D.

An approach of specific assets and liabilities in a financial statement that requires correct mix of long and short term revenues.

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Question # 7

What represent the ownership interests in the net assets of the subsidiary held by persons outside the controlling entities’ structure?

A.

External control

B.

Minority interests

C.

Permanent stockholder

D.

None of the above

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Question # 8

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

A.

Business

B.

Temporal

C.

Principal

D.

Segregated

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Question # 9

The Module Rule requires the insurer to provide:

A.

to the insurance commissioner of the state of domicile, a copy of notification of adverse financial condition

B.

to the auditor, evidence that the notification has been provided to the organization

C.

Both A & B

D.

Neither A nor B

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Question # 10

Inflation in Defense & Cost Containment (DCC) is evaluated separately and is estimated to occur at the same rate as the rate of inflation in the losses.

A.

True

B.

False

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Question # 11

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

A.

Appropriate business decisions

B.

Holistic techniques

C.

Collateral strategies

D.

Reimbursement activities

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Question # 12

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

A.

True

B.

False

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Question # 13

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

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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Question # 14

The estimated liability includes the amount of money that will be used for future payments of:

A.

Reported claims to insurer

B.

Claims related to insured events

C.

Claim adjustment expenses

D.

All of the above

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Question # 15

The combined ratio is the sum of it:

A.

loss ratio

B.

expense ratio

C.

dividend ratio

D.

All of the above

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Question # 16

_______ include financial statements and notes, both on a consolidated and non consolidated basis.

A.

The annual Return

B.

Provincial Adequacy Return

C.

Constraints of self assessment

D.

Static Capital Adequacy Test

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Question # 17

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

A.

True

B.

False

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Question # 18

What encompasses investment income and gains and losses, as well as custody of investment and recordkeeping?

A.

Valuation data

B.

Verification note

C.

Transaction cycle

D.

Investment evaluation

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Question # 19

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

A.

Risk approach

B.

Market approach

C.

Income approach

D.

Cost approach

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Question # 20

There is pending litigation concerning the acquisition of a subsidiary and it is probable such litigation will result in its divestiture is an example of:

A.

Transaction control

B.

Subsidiary control

C.

Significance control

D.

Temporary control

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Question # 21

When securities repurchased under repos commonly have a principal amount that differs from principal amount of the security originally sold under the agreement, is known as:

A.

Splintering act

B.

Breakage

C.

Rollover

D.

None of the above

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Question # 22

In which plan all activities writing automobile insurance in a state are allocated a share of the involuntary business on an equitable basis?

A.

Automobile equitability

B.

Automobile insurance

C.

Automobile assurance

D.

None of the above

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Question # 23

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:

A.

Portfolio

B.

Claims

C.

Captives

D.

Fronting

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Question # 24

Which of the following is the objective to the evaluation and risk-accepting function?

A.

Evaluating and acceptability of risk

B.

Determining the premium

C.

Evaluation of entity’s capacity to retain risk

D.

All of the above

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Question # 25

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?

A.

Interest contract funds

B.

Interest on policy

C.

Contract funds

D.

B or C

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Question # 26

Coverage of risks that do not fit normal underwriting patterns and that are not commensurate with standard rates is normally refers to as:

A.

Surplus lines

B.

Commercial lines

C.

Risk lines

D.

Standardized lines

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Question # 27

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.

A.

True

B.

False

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Question # 28

The balloon payment technique uses level payments of principal and interest but for a shorter period than is required to retire the loan fully during its term. For example, a loan with a 8.5 percent interest rate utilizing a 25-year amortization schedule with a 7-year maturity results in only $111 of each $l,000 principal being repaid. Thus, $889 of each $l,000 originally borrowed constitutes the balloon amount due at maturity.

A.

7th-year

B.

5th-year

C.

6th-year

D.

4th-year

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Question # 29

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:

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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Question # 30

With which standard, the auditor’s substantive procedures must include reconciling the financial statements to the accounting records and should include examining material adjustments made during the course of preparing the financial statements.

A.

Integrated Audit Financial Statement

B.

Public Company Accounting Oversight Board

C.

Audit of Financial Reporting over Internal Control

D.

National Association of Insurance Commission

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Question # 31

When a retained asset account is established in the place of a cash settlement, an interest bearing account is created by the insurer for the beneficiary. The beneficiary receives a checkbook with which to draw upon funds in the new account. The account holder can make:

A.

Partial or total withdrawal of the account balance as needed and has total control over the account

B.

Partial withdrawal of the account balance as needed and has total control over the account

C.

Total withdrawal of the account balance as needed and has total control over the account

D.

25% withdrawal of the account balance as needed and has total control over the account.

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Question # 32

Immunization theory says that:

A.

duration matching requires rebalancing the asset portfolio, but the theoretically correct answer is to rebalance continuously.

B.

Investment matching requires rebalancing the liabilities portfolio, but the theoretically correct answer is to rebalance annually.

C.

Performance matching requires rebalancing the expense portfolio, but the theoretically correct answer is to rebalance continuously as and when needed only.

D.

Balance matching requires rebalancing the revenues portfolio, but the theoretically correct answer is to rebalance continuously.

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Question # 33

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:

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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Question # 34

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:

A.

Group contingency reserve

B.

Group annuity contingency reserve

C.

Participation is separate accounts

D.

Guarantee Loan

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Question # 35

Audit regulatory is more reliable when it is obtained from knowledgeable independent sources inside the entity.

A.

True

B.

False

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Question # 36

Evidences the fair market value of the property that is security for the mortgage loan. The appraisal value is used to determine that the loan to market value ratio is in compliance with regulatory requirements. It also is used to determine any non-admitted mortgage loan amount. Appraisals are obtained from:

A.

Independent, qualified appraisers

B.

The company’s own qualified appraisers

C.

Federal Housing Administration

D.

Any one out of A and B

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Question # 37

Outgoing premiums less return premiums arising from reinsurance purchased from other insurance entities are called:

A.

Rating premiums

B.

Direct premiums

C.

Assumed reinsurance premiums

D.

Ceded reinsurance premiums

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Question # 38

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

A.

Single peril

B.

Multiple peril

C.

Property lines

D.

professional property

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Question # 39

Generally, Participation income is an income stream due the company and is based upon the financial results of the borrower and/or borrowing business entity. Although it can take several forms, the more prominent ones are:

A.

Participation in revenue generated by the mortgaged property above a specified sum, such as a percentage of gross sales in excess of a specified dollar volume

B.

Participation in profits from the mortgaged property, such as a percentage of gross income less defined expenses

C.

Percentage of gross sales in excess of a specified dollar volume

D.

percentage of net sales in excess of a specified dollar volume

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Question # 40

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:

A.

Dependency method

B.

Equity method

C.

Temporal method

D.

Cash inflow/outflow method

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Question # 41

The securities repurchased have the same stated interest rate as, and maturities similar to, the securities sold and are generally priced to result in substantially the same yield is known as:

A.

Yield-maintenance agreements

B.

Variable-coupon agreements

C.

Fixed-coupon agreement

D.

None of the above

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Question # 42

The two most common types of dollar rolls are:

A.

Fixed-coupon and yield-maintenance agreements

B.

Variable-coupon and yield-maintenance agreements

C.

Fixed-coupon and Accounting agreements

D.

Variable -coupon and Principal agreements

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