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SOFE AFE Accredited Financial Examiner Exam Practice Test

Demo: 42 questions
Total 286 questions

Accredited Financial Examiner Questions and Answers

Question 1

The arrangements by which pools manage separate accounts for each pool member from which the losses of that member are paid is called:

Options:

A.

employee pools

B.

claim-serving pools

C.

singular entity pools

D.

None of the above

Question 2

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.

Question 3

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

Question 4

A process designed to provide reasonable assurance about the achievement of the entity’s objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations is called:

Options:

A.

External control

B.

Internal auditing

C.

Internal control

D.

None of the above

Question 5

What give the issuer the right to retire the bond at certain times, typically if prevailing market interest rates fall below the rate on the bond?

Options:

A.

Call options

B.

Prepayment provisions

C.

Variable income statements

D.

Investments modules

Question 6

Reinsurance is defines as:

Options:

A.

to pay another party to assume a stream of contingent expenses, for a premium over the expected cost

B.

to pay another party to assume a stream of contingent revenues, for an interest over the expected cost

C.

to sell another party to assume a stream of contingent assets, for a premium over the actual cost

D.

to sell another party to assume a stream of contingent expenses, for a discount over the expected cost

Question 7

Changes in payment procedures or changes in the definition of payment date for coding purposes may or may not affect loss reserve developments.

Options:

A.

True

B.

False

Question 8

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

Question 9

The loss reserve estimate is a significant estimate in the financial statements of an uninsured entity.

Options:

A.

True

B.

False

Question 10

Final approval should be obtained prior to placing a new system into operation is the activity that can be fall into which control?

Options:

A.

Organizations and operations control

B.

System development control

C.

Access control

D.

Procedural control

Question 11

What funnels premium dollars into separate accounts which means segregated pools of bonds or stocks?

Options:

A.

Variable life insurance

B.

Periodic life insurance

C.

Insurance plan

D.

Isolated Interest rate

Question 12

With fixed deferred annuities;

Options:

A.

the credited rate is determined fiscally and declared by the insurance company

B.

the debited rate is periodically re-determined and declared by the organization

C.

the credited rate is periodically re-determined and declared by the insurance company

D.

the debited rate is determined fiscally and declared by the organization

Question 13

Which of the following is NOT the date that is the key to classify the chronology of the data?

Options:

A.

policy date

B.

accident date

C.

reinsurance date

D.

report date

Question 14

Financial statements of a self-sustaining foreign operation are translated using the current rate method whereby assets and liabilities are translated in the reporting currency using the exchange rate.

Options:

A.

True

B.

False

Question 15

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

Question 16

What is made on an instrument-by-instrument basis, generally when an instrument is initially recognized in the financial statements?

Options:

A.

Election

B.

Disclosure

C.

Eligibility

D.

Discount

Question 17

Which of the following id NOT the kind of Insurance?

Options:

A.

Business policies

B.

fire and alliance lines

C.

inland marine

D.

professional liability

Question 18

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

Options:

A.

Private entities

B.

Public entities

C.

Reciprocal entities

D.

Mutual entities

Question 19

In a yield-maintenance agreement:

Options:

A.

the securities repurchased may have a different stated interest rate from that of the securities sold and are generally priced to result in substantially the same yield.

B.

the securities repurchased may have the same stated interest rate from that of the securities sold and are generally priced to result in substantially the same yield.

C.

the securities repurchased may have a different stated interest rate from that of the securities sold and are generally priced to result in substantially the different yield.

D.

the securities repurchased may have a same stated interest rate from that of the securities sold and are generally priced to result in substantially the different yield.

Question 20

The name of each Subsidiary, Controlled and Affiliated (SCA) entity and percentage of ownership of common stock must be put to disclosure when:

Options:

A.

For all investments in SCA entities that exceed 20 percent of the total admitted expenses of the insurer.

B.

For all investments in SCA entities that exceed 15 percent of the total admitted liabilities of the insurer.

C.

For half of the investments in SCA entities that exceed 6 percent of the total admitted assets of the insurer.

D.

For all investments in SCA entities that exceed 10 percent of the total admitted assets of the insurer.

Question 21

The Annual Statement reporting requirements for the participating and nonparticipating branches is limited to major and secondary lines of business, but a company would:

Options:

A.

Usually carry this separation throughout all of its premium classifications

B.

Do not carry this separation throughout all of its premium classifications

Question 22

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:

Options:

A.

Portfolio

B.

Claims

C.

Captives

D.

Fronting

Question 23

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

Question 24

Which of the following is NOT the interrelated component of internal control?

Options:

A.

Control environment

B.

Risk assessment

C.

Control activities

D.

Planning control

Question 25

The two most common types of dollar rolls are:

Options:

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

Question 26

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

Question 27

A liability for premiums paid in advance can also arise when insurers allow policyholders to pay several years’ premiums at one time. Since the insurer has the use of policyholder funds that are not yet due, it is customary for the insurer to:

Options:

A.

Credit Assets

B.

Discount the value of such premiums and accept a lesser amount in cash

C.

Discount the value of such premiums

D.

Accept a lesser amount in cash

Question 28

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

Options:

A.

Surplus lines

B.

Commercial lines

C.

Risk lines

D.

Standardized lines

Question 29

What is applied to the sale of all or a block of an entity’s insurance in force of another entity?

Options:

A.

Insurance impede

B.

Portfolio Reinsurance

C.

Poly-holder insurance

D.

Syndicated insurance

Question 30

An annuity contract provides:

Options:

A.

Either immediately or at some future date, periodic income payments to one or more persons, perhaps with a certain guaranteed number of payments or with a minimum guaranteed amount for those annuities not having life contingencies

B.

Either immediately or at some future date, periodic income payments to one or more persons, perhaps with a certain guaranteed number of payments or with a minimum guaranteed amount for those annuities involving life contingencies

C.

Either immediately or at some future date, perpetual income payments to one or more persons, perhaps with a certain guaranteed number of payments or with a maximum guaranteed amount for those annuities involving life contingencies

D.

Either immediately or at some future date, periodic income payments to one or more persons, perhaps with a certain small number of payments

Question 31

In the NAIC Accounting Practices and Procedures Manual there is limitation on the amount of EDP equipment and operating systems software, that can be shown as admitted assets. Companies are generally limited to of the reporting entity’s capital and surplus, as reported in the financial statement most recently filed with the domiciliary commissioner adjusted to exclude any EDP and operating system software, net deferred tax assets and positive goodwill.

Options:

A.

Four percent

B.

Three percent

C.

Five percent

D.

Seven percent

Question 32

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:

Options:

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

Question 33

Which of the following is NOT the Asset/ Liability Management (ALM) activity?

Options:

A.

Regulation of Insurer Financial Disclosure

B.

Regulation of Insurer Investment Activity

C.

Regulation of Insurer Reserve Adequacy

D.

Regulation of Insurer Asset Adequacy

Question 34

Excess liability:

Options:

A.

covers the insured against the loss in access of an actual amount, but only for profits as covered and defined in a predetermined planning.

B.

covers the insured against the loss in access of an actual amount, but only for profits as covered and defined in an underlying policy.

C.

covers all uninsured against the gain in access of a stated amount, but only for losses as covered and defined in an underlying policy.

D.

covers the insured against the loss in access of a stated amount, but only for losses as covered and defined in an underlying policy.

Question 35

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:

Options:

A.

Dependency method

B.

Equity method

C.

Temporal method

D.

Cash inflow/outflow method

Question 36

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

Question 37

On both old and new business, companies can also avoid premium notes by entering into agreements involving deposits of a portion of the premium with an extension on the balance. These deposits are treated as:

Options:

A.

A liability

B.

Unearned revenue and not credited to income until the deposit is used to pay the premium

C.

A liability and not credited to income until the deposit is used to pay the premium

D.

Asset and not credited to income until the deposit is used to pay the premium

Question 38

What may leave more risk than a company should prudently assume due to the risk exacerbating features of a particular product?

Options:

A.

Feasible investment strategy

B.

Design strategy

C.

Risk strategy

D.

Product risk strategy

Question 39

What of a life insurer’s is determined by applying factors for risk components to specific on and off-balance sheet assets or liabilities and by adding the results?

Options:

A.

The annual Return

B.

Business policy

C.

Provincial act

D.

Capital requirement

Question 40

Direct serving loans method requires a system of good internal control and requires that the functions be split between the Accounting Department and the Investment Department. In such a case the Accounting Department is responsible for all of the following EXCEPT:

Options:

A.

Supplying the Investment Department with correct data and reports that summarize all loan transactions

B.

Alerting the Investment Department promptly whenever an exception to the normal processing routine occurs

C.

The design, maintenance, and accuracy of accounting records, for periodic management and exception reports, and for statutory statement preparation

D.

Its records may or may not provide the needed data to support this reporting function

Question 41

Extrapolation of historical dollars, projection of separate frequency data, use of expected loss ratios are all projection methods for:

Options:

A.

Loss extrapolation projections

B.

Loss reserve projections

C.

Claim unit projections

D.

Losses incurred projections

Question 42

The market in which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity for the asset or liability is known as:

Options:

A.

Transfer market

B.

Transport market

C.

Principal market

D.

Turn-around market

Demo: 42 questions
Total 286 questions