What Is the Fundamental Function of the Insurance Company-In Other

question 62

Multiple Choice

What is the fundamental function of the insurance company-in other words, what is it the insurance company does that makes the insurance mechanism work?

• A) It pools those insureds having similar risks, and predicts the losses that those in the pool will suffer.
• B) It pools any insureds who wish to purchase insurance, and attempts to predict the losses that those in the pool will suffer.
• C) It redistributes government subsidies to those who have suffered catastrophes.
• D) It eliminates the process of underwriting in order to sell insurance to as many people as possible, thus providing insureds with a huge quantity discount.

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Definitions:

Treasury Stock

Shares that were once part of the outstanding shares and have been bought back by the company, reducing the amount of stock on the open market.

Common Stock

A form of corporate equity ownership, representing a share of the company and typically carrying voting rights.

Cumulative Preferred Stock

A type of preferred stock where dividends that have not been paid in the past must be paid out to preferred shareholders before common shareholders can receive any dividends.

Par Common Stock

The face value of common stock as designated in the corporate charter, which is the minimum amount that shares can be issued for.