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At /a /typical /insurance /company, /which /of /the /following /areas /are /part /of /financial /operations? /Choose /all /that /apply.
a. /Accounting /and /financial /reporting
b. /Treasury /operations
c. /Information /technology
d. /Investment /operations
e. /Internal /audit /- /correct /answer /✔A, /B, /D, /& /E- /All /of /these /areas — except /for /information /technology — are /part /of /a /typical /insurance /company's /financial /operations. /Although /the /IT /department /plays /an /essential /role /in /maintaining /the /quality /of /the /data /provided /to /financial /managers, /it /is /not /technically /part /of /financial /operations.
Board /and /Executive /Roles
The /financial /management /function /- /correct /answer /✔Provides /information /to /stakeholders
Ensures /that /financial /obligations /are /met
Ensures /compliance /with /complex /financial /regulations
Generates /adequate /returns /for /the /company's /owners /and /customers
Role /of /the /Board /of /Directors /- /correct /answer /✔- /Investment /committee: /The /investment /committee /sets /Forthright's /investment /policy /and /oversees /investment /operations.
- /Audit/risk /committee: /The /audit/risk /committee /directs /Forthright's /audit /and /internal /control /function.
The /role /of /the /Ceo /- /correct /answer /✔I /approve /our /budget /numbers. /Then /I /manage /our /resources — in /line /with /budget /guidelines /and /all /current /laws /and /regulations.
Technically /I'm /responsible /for /directing /financial /objectives /and /strategies, /but /I /delegate /most /of /these /responsibilities /to /senior /financial /officers.
However, /make /no /mistake, /the /buck /stops /here! /We /are /a /publicly /held /company. /Investors, /customers, /and /regulators /can, /and /should, /hold /me /responsible /for /our /financial /results.
The /role /of /the /CFO /- /correct /answer /✔As /CFO, /I /report /to /Grace /Avon, /our /CEO. /I /work /closely /with /company /directors /to /develop /corporate /goals /and /strategies. /I /coordinate, /monitor, /and /direct /Forthright's /financial /activities.
That /covers /a /lot /of /territory. /In /the /financial /world, /information /quality /and /accuracy /are /critically /important — I /work /closely /with /IT /to /make /sure /we /get /that /right. /That /information /has /to /be /communicated /to /company /managers /and /external /parties. /When /we /need /to /raise /funds — that's /also /my /job.
Last, /but /not /least, /strong /financial /controls /and /measurement /tools /are /absolutely /essential.
Financial /Management /Operating /Units /- /correct /answer /✔Specific /job /titles /and /organizational /structures /vary /according /to /a /company's /unique /needs, /but /all /insurers /must /perform /certain /core /financial /functions, /as /shown /below.
Records, /tracks, /and /reports /on /financial /transactions
Coordinates /the /budget /process /and /oversees /expense /analysis
Prepares /financial /statements /and /reports /for /external /users
Gathers, /records, /analyzes, /and /distributes /financial /information /to /company /managers
Of /the /following /stakeholders, /select /the /ones /Forthright /would /consider /to /be /internal /users /of /its /accounting /information. /Choose /all /that /apply.
a. /Regulators
b. /Rating /agencies
c. /Board /of /directors
d. /Policyowners
e. /Managers
f. /Investors
g. /Taxing /authorities /- /correct /answer /✔C /& /E /- /Internal /users /work /inside /the /company /and /make /decisions /about /the /company's /operations. /External /users /are /outside /the /company /and /use /the /company's /financial /information /primarily /to /make /investment, /regulatory, /and /other /decisions /about /the /company.
user /information /needs /(managers) /- /correct /answer /✔Managers /within /the /organization /may /use /accounting /information /to
Assess /their /departments' /day-to-day /operations
Judge /whether /they /are /meeting /their /financial /goals
Plan /for /future /needs
external /policy /owner /- /correct /answer /✔As /a /policyowner, /I /want /to /know /that /Forthright /will /have /enough /money /to /pay /its /bills. /I /want /to /be /sure /that /it /is /financially /stable. /Will /Forthright /be /able /to /pay /my /claim / 25 /years /from /now?
external /investor /- /correct /answer /✔I'm /considering /buying /shares /of /Forthright's /corporate /stock. /I /want /to /know /how /profitable /the /company /is /and /how /financially /stable /it /is. /What /kind /of /return /can /I /expect /on /my /investment?
external /regulator /- /correct /answer /✔As /a /regulator, /my /role /is /to /protect /the /interests /of /consumers /who /have /purchased /insurance /policies. /I /want /to /know /that /an /insurer /can /honor /its /obligations /to /policyholders /at /all /times. /My /focus /is /on /the /company's /ability /to /pay /its /bills /rather /than /its /ability /to /make /a /profit. /Is /Forthright /making /sound /business /decisions /so /that /it /will /remain /solvent?
financial /accounting /- /correct /answer /✔The /field /of /accounting /that /focuses /primarily /on /reporting /a /company's /financial /accounting /information /to /meet /the /needs /of /the /company's /external /stakeholders.
- /regulators
- /creditors
- /investors
- /rating /agencies
- /tax /authorities
Management /accounting /- /correct /answer /✔The /field /of /accounting /that /focuses /primarily /on /reporting /and /presenting /a /company's /financial /information /to /meet /the /needs /of /the /company's /internal /users.
b. /False /- /correct /answer /✔B. /- /Although /information /on /current /and /past /performance /is /an /important /starting /point, /management /accounting /is /future- focused. /Financial /accounting, /on /the /other /hand, /is /limited /to /creating /reports /on /the /company's /current /situation /and /past /performance.
Management /accounting /can /focus /on /different /parts /of /the /business, /such /as /-
/correct /answer /✔Product /lines /or /products
Specific /business /functions
Specific /operating /units
I /use /management /accounting /tools /to /- /correct /answer /✔Measure /the /profitability /of /products /and /services
Analyze /operating /costs /and /manage /expenses
Budget /resources /to /support /goals
Evaluate /the /efficiency /of /procedures /and /personnel
The /person /who /manages /accounting /and /financial /reporting /is /generally /the
a. /CFO
b. /Controller
c. /CEO /- /correct /answer /✔B. /- /Accounting /is /usually /managed /by /the /Controller, /who /reports /to /the /CFO.
One /type /of /tax /paid /by /insurers /is /premium /taxes. /Most /jurisdictions /assess /an /insurer's /premium /taxes /as /a
a. /percentage /of /premium /income /received
b. /percentage /of /assets /held
c. /flat /amount /for /each /company /- /correct /answer /✔A. /- /Premium /taxes /are /calculated /as /a /percentage /of /premium /income /received.
(Financial // /Management) /accounting /reports /on /past /performance /and /the /current /situation. /(Financial // /Management) /accounting /is /designed /to /help /managers /make /the /best /use /of /resources.
a. /Financial // /Financial
b. /Financial // /Management
c. /Management // /Financial
d. /Management // /Management /- /correct /answer /✔B. /- /Financial /accounting /reports /on /past /performance /and /the /current /situation. /Management /accounting /is /designed /to /help /managers /make /the /best /use /of /resources.
budget /- /correct /answer /✔A /financial /plan /of /action, /expressed /in /monetary /terms, /that /covers /a /specified /time /period.
- /a /budget /can /be /used /as /a /steering /control, /a /concurrent /control, /and /a /feedback /control.
steering /control /- /correct /answer /✔Managers /develop /revenue /and /expense /projections /for /a /specific /period, /usually /one /year. /They /use /these /projections /to /create /a /budget, /which /provides /financial /goals /and /guidance /for /activities /during /the /year.
concurrent /control /- /correct /answer /✔During /the /year, /managers /compare /their /actual /results /to /budgeted /projections, /and /then /alter /their /activities
b. /False /- /correct /answer /✔Sometimes /expenses /can /be /TOO /low. /Some /of /the /approaches /a /manager /takes /to /keep /expenses /low /could /hurt /the /company /overall. /Managers /typically /try /to /hit /their /budget /targets.
Treasury /operations /- /correct /answer /✔I /work /in /treasury /operations, /which /is /all /about /cash /management: /cash /going /in /and /cash /going /out. /If /it /has /to /do /with /cash /receipts, /payments, /or /banking — that's /Treasury /Ops /stuff. /I /report /to /Forthright's /Treasurer. /At /Forthright, /Treasury /Operations /reports /up /to /the /CFO — which /is /pretty /typical.
Treasury /Operations
Controls /cash /flows /in /and /out /of /the /company
Involves /cash /receipts, /payments, /and /banking
Is /headed /by /the /Treasurer, /who /reports /to /the /CFO
treasury /operations /also: /- /correct /answer /✔- /manages /liquidity: /Ensures /that /cash /is /available /to /meet /forthright's /contractual /obligations /
-tracks /cash /flow: /receives /and /disburses /money, /authorizes /cash /disbursements, /records /and /allocates /cash /transactions /
- /banking: /sets /up /bank /accounts, /reconciles /bank /statements, /manages /lock /boxes /for /premium /payments, /earns /a /return /on /cash
- /invest /excess /cash /in /very /short-term /arrangements /(overnight /loans)
- /arranges /for /very /sort-term /borrowing /as /needed /(overnight /borrowing)
Investment /organization /- /correct /answer /✔- /a /subsidiary /corporation
- /a /major /division /within /a /broader /corporation, /serving /both /the /life /insurance /area /and /other /business /units /
- /Outsourced /to /another /company /
- /separate /department
investment /policy /- /correct /answer /✔An /investment /policy /is /a /set /of /rules /and /guidelines /that /specifies
Long-term /investment /objectives /for /the /company
Acceptable /investment /strategies /for /achieving /investment /goals
Acceptable /types /of /investments
Controls /and /risk /management /procedures /(like /policies /defining /who /is /authorized /to /make /what /trades)
Limits /on /specific /investments, /prohibited /assets, /and /trading /activities
Consistent /standards /for /measuring /investment /performance
investment /objectives /- /correct /answer /✔The /financial /goals /pursued /by /an /insurer /over /time.
investment /strategies /- /correct /answer /✔A /formal /plan /of /action /for /achieving /an /investment /objective.
Other /jobs /in /an /insurance /company's /investment /department /include /- /correct
/answer /✔Investment /analysts, /who /conduct /research /into /specific /investment /opportunities
Economists, /who /forecast /and /track /economic /trends
equity /security /- /correct /answer /✔A /financial /security /that /represents /an /investor's /ownership /interest /in /a /business /or /property.
debt /security /- /correct /answer /✔A /financial /security /that /represents /an /investor's /loan /of /funds /to /a /debt /issuer.
mortgage /- /correct /answer /✔A /long-term /loan, /secured /by /a /pledge /of /specified /property, /that /the /borrower /agrees /to /pay /off /with /regular /payments /of /principal /and /interest.
A /debt /security
A /long-term /loan /secured /by /a /pledge /of /specified /property
Used /for /commercial /property /(office /buildings, /shopping /centers) /or /residential /properties /(houses, /condominiums)
Bond /- /correct /answer /✔A /debt /investment /in /which /an /investor /loans /money /to /an /entity /(corporate /or /governmental) /that /borrows /the /funds /for /a /defined /period /of /time /at /a /fixed /interest /rate.
A /debt /security
A /form /of /financing /for /businesses /and /governments
A /loan:- /Issuer /= /Borrower- /Investor /= /Lender
Corporate /stock /- /correct /answer /✔A /type /of /security /that /signifies /ownership /in /a /corporation /and /represents /a /claim /on /part /of /the /corporation's /assets /and /earnings.
An /equity /security
An /ownership /interest /in /the /issuing /company
stockholder /dividends /- /correct /answer /✔Payment /to /the /stockholders /of /a /portion /of /a /corporation's /yearly /earnings.
capital /gains /- /correct /answer /✔A /return /earned /by /selling /stock /for /more /than /its /purchase /price.
general /account /- /correct /answer /✔An /asset /portfolio /that /supports /a /life /insurer's /contractual /obligations /to /owners /of /guaranteed /products, /such /as /whole /life /products /and /fixed /annuities.
In /which /the /insurer /bears /the /investment /risk
That /supports /guaranteed /products
separate /accounts /- /correct /answer /✔One /or /more /asset /portfolios /to /support /an /insurer's /variable /products, /which /are /classified /as /investment /products.
In /which /the /customer /bears /the /investment /risk
That /support /variable /products
Based /on /what /you /have /seen /so /far, /what /would /you /predict /is /the /primary /type /of /security /in /an /insurer's /general /account?
a. /Government /and /corporate /bonds
One /example /of /an /equity /security /is
a. /A /bank /deposit
b. /A /bond
c. /A /mortgage /loan
d. /Corporate /stock /- /correct /answer /✔d. /-A /bank /deposit /is /not /a /security, /and /bonds /and /mortgage /loans /are /debt /securities. /Corporate /stock /is /an /equity /security /representing /an /ownership /interest /in /a /corporation.
The /general /account /contains /assets /that /support /liabilities /associated /with /an /insurer's /variable /products, /such /as /variable /life /insurance /policies /and /variable /annuities.
a. /True
b. /False /- /correct /answer /✔B. /- /The /type /of /account /that /supports /an /insurer's /variable /products /is /the /separate /account. /The /assets /in /the /general /account /support /a /life /insurer's /contractual /obligations /for /guaranteed /products /the /insurer /has /issued, /such /as /traditional /whole /life /insurance /and /fixed /annuities.
The /investment /risk /associated /with /a /separate /account /is /assumed /by /the /customers /who /purchase /variable /products /rather /than /by /the /insurer.
a. /True
b. /False /- /correct /answer /✔A. /- /Customers /assume /the /investment /risk /associated /with /a /separate /account /and /insurers /bear /the /risk /associated /with /the /general /account.
Insurers /hold /a /greater /percentage /of /corporate /stock /in /their /general /account /than /in /their /separate /accounts.
a. /True
b. /False /- /correct /answer /✔B. /- /Insurers /hold /more /corporate /stock /in /their /separate /accounts. /Insurance /laws /limit /the /percentage /of /stocks /that /insurers /hold /in /their /general /account /portfolios. /Overall, /most /of /an /insurer's /general /account /investments /are /in /bonds /and /mortgages.
At /Forthright, /the /audit /function /reports /directly /to /the /audit/risk /committee /of /Forthright's /board /of /directors. /Can /you /think /of /a /reason /why /audit /reports
/directly /to /the /board? /- /correct /answer /✔The /audit /function /must /operate /independently /from /other /financial /functions /within /the /company, /so /that /auditors /are /independent /and /unbiased.
Internal /audit /- /correct /answer /✔An /important /control /tool /for /managing /risk /is /the /internal /audit — a /systematic /examination /and /evaluation /of /a /company's /records, /processes, /and /controls /by /company /employees.
An /internal /audit /can /focus /on /any /area /within /the /company — and /different /auditors /have /different /specialties. /Auditors /examine /records, /processes, /and /controls /in /underwriting, /claims, /or /customer /service.
internal /financial /audit /- /correct /answer /✔An /evaluation /of /the /accuracy /of /accounting, /the /reporting /of /financial /transactions, /and /the /adequacy /of /controls /over /cash /and /other /assets.
Are /our /financial /records /fair /and /accurate?
Are /our /control /procedures /adequate? /Are /we /following /them?
Are /our /assets /safeguarded?
Are /we /meeting /our /compliance /obligations?
Define /strategic, /operational, /financial, /or /compliance-related /risks
Determine /appropriate /financial /risk /tolerances
Measure /and /monitor /financial /risk
Identify /risks /and /ways /to /mitigate /risks /financially
One /control /tool /an /insurer /uses /is /a /systematic /examination /and /evaluation /of /its /records, /processes, /and /controls /by /company /employees. /This /control /tool /is /an
a. /Internal /audit
b. /Internal /budget
c. /External /audit /- /correct /answer /✔A. /- /An /internal /audit /is /a /systematic /examination /and /evaluation /of /a /company's /records, /processes, /and /controls /conducted /by /company /employees /as /opposed /to /an /independent /party.
The /audit /function /in /an /insurance /company /typically /reports /to /the
a. /CEO
b. /CFO
c. /Audit/risk /committee /of /the /board /of /directors /- /correct /answer /✔C. /- /The /audit /function /generally /reports /directly /to /the /board /of /directors, /which /helps /ensure /that /audits /are /independent /and /unbiased.
Calculating /policy /reserve /liabilities /and /projecting /cash /flows /are /activities /completed /by /which /of /the /following /departments?
a. /Risk /management
b. /IT
c. /Actuarial /- /correct /answer /✔C. /- /These /are /some /of /the /crucial /activities /actuaries /perform /to /ensure /an /insurer /remains /on /a /firm /financial /footing.
Financial /management /is /how /an /insurance /company /manages /its /resources /to /meet /the /company's /financial /goals. /Which /of /the /following /are /typical /goals /of /an /insurance /company's /financial /managers? /Choose /all /that /apply.
Providing /financial /information /to /stakeholders
Maintaining /assets /that /equal /the /insurer's /liabilities
Achieving /financial /compliance /and /stability
Managing /the /company's /solvency /and /profitability
Managing /capital /and /risk /- /correct /answer /✔A, /C, /D, /& /E- /All /of /these /are /typical /goals /of /an /insurance /company's /financial /managers, /except /for /maintaining /assets /that /equal /the /insurer's /liabilities. /An /insurer's /assets /need /to /exceed /its /liabilities /by /a /comfortable /margin. /In /this /lesson, /we'll /look /at /how /insurance /companies /achieve /their /financial /management /goals.
insolvency /- /correct /answer /✔A /business's /inability /to /meet /its /financial /obligations /on /time.
solvency /- /correct /answer /✔A /business's /inability /to /meet /its /financial /obligations /on /time.
assets /- /correct /answer /✔All /the /things /of /value /owned /by /a /company.
liabilities /- /correct /answer /✔A /company's /debts /and /future /obligations.
liquid /assets /- /correct /answer /✔In /accounting, /a /business /organization's /cash /and /other /assets /that /would /be /readily /marketable /for /their /underlying /value.
