Apex Insurance Company Wrote a Large Number of Property Insurance

question 16

Multiple Choice

Apex Insurance Company wrote a large number of property insurance policies in an area where earthquake losses could occur.When the president of Apex was asked if she feared that a severe earthquake might put the company out of business,she responded,"Not a chance.We transferred most of that risk to other insurance companies." An arrangement by which an insurer that initially writes insurance transfers to another insurer part or all of the potential losses associated with such insurance is called

• A)hedging.
• B)speculating.
• C)reinsurance.
• D)loss avoidance.

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Definitions:

U.S. Income Tax System

The progressive tax system in the United States where taxes are based on income levels and include deductions and credits, resulting in varying rates.

Indexed for Inflation

A mechanism to adjust income payments or prices by taking into account the rate of inflation to preserve purchasing power.

Price Level

An index that measures the average of the prices of goods and services in an economy, indicating the cost of living or inflation.

Purchasing Power

The value of currency expressed in terms of the amount of goods or services that one unit of money can buy.