Which of the following statements is(are) true with respect to the factors that a manager must take into account when managing the portfolios of casualty insurance companies?
I. The amount of new underwriting business that may be undertaken is solely dependent upon the firm's capital, and is irrespective of the firm's investment income.
II. The degree of inflation protection may be reduced with the firm's ability to raise premiums.
III. Long term asset appreciation is of greater importance than short-term liquidity.
IV. Income from underwriting activities are fully taxable.
a) I, II, and III only
b) III only
c) II and IV only
d) I and III only

The correct answer is: c)
(I) is incorrect because while he amount of new underwriting business that may be undertaken is dependent upon the firm's capital, any investment income will only add to that capital. Thus, the greater the investment income, the higher will be the firm's capital, and therefore its ability to underwrite more insurance.
(II) is true because raising premiums has the same effect as earning an inflation premium from the investments.
(III) is incorrect because casualty insurers have unpredictable cash flow streams, thus liquidity is extremely important.


  1. The Administrator issue may issue a stop order for a federal covered security under ...

    The correct answer is d. The Administrator may issue a stop order if it believes it to be in the best interest of the public, ...
  2. The popular trading system "Instinet" is situated in which of the following markets ...

    Free info on financial certification exams including study guides, exam questions, and much more!
  3. When a floor broker asks a specialist, “How’s PDQ?” ...

    The correct answer is d) When the specialist gave the floor broker the quote of “59.20 to 35; 6 by 11,”  the quote meant ...
  4. A person purchases stock XYZ (an Over The Counter stock) from a company who is also ...

    The correct answer is c When the firm is a market maker in the stock then it must act as a principle. Principal is the main ...
  1. No results found.

You May Also Like

Related Articles
  1. No results found.
Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!