18. The effect of a stock insurance company increasing its insurance leverage, if underwriting results are favorable, is A. A reduction of risk for its policyholders. B. An increased return for stockholders. C. In increase in the bond portfolio return. D. A reduction in policyholders' surplus. 19. Gibraltar Insurance Company's ratio of premium to surplus is 2 to 1. The company has reserves of $1.60 for each $1.00 of premium written. What is Gibraltar Insurance Company's insurance leverage? A. 1.25 B. 2.67 C. 3.20 D. 3.60 20. Virtually all assets involve some level of asset risk. Which of the following is true of the risk-based capital (RBC) formula in regard to asset risk? A. Riskier assets require more underlying capital than less risky assets. B. An increase in assets value will reduce policyholder surplus. C. Reinsurer's failure to pay amounts due would be asset risk. D. Excessive growth in premiums would pose an asset risk.
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This is because insurance leverage refers to the use of borrowed funds to increase the potential return on investment. If underwriting results are favorable, it means that the company is generating more income from its insurance operations, which can then be used Show more…
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