"Direct Recognition" Occurs When the Insurance Company

question 84

Multiple Choice

"Direct recognition" occurs when the insurance company

• A)reduces dividend payments because of an unexpected increase in costs.
• B)increases premiums in recognition of the insureds advancing age.
• C)reduces the rate earned on a portion of the cash value,because the insured has taken out a policy loan.
• D)revises its actuarial factors to reflect the changing risk environment.

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Definitions:

Cash Dividend

A payment made by a corporation to its shareholders, usually as a distribution of profits.

MM

The Modigliani-Miller theorem, a foundational concept in corporate finance proposing that under certain conditions, the value of a firm is unaffected by how it is financed.

Firm's Stock

The capital raised by a corporation through the issuance and subscription of shares representing ownership interest in the company.

Dividend Cuts

A reduction in the dividend payments announced by a company, often due to financial difficulties or a need to retain more earnings for investments.