SOFE Exam AFE Topic 1 Question 82 Discussion

Actual exam question for SOFE's AFE exam

Question #: 82
Topic #: 1

[All AFE Questions]

Which of the following is Correct?

Athe financial position of an entity with a 2-to-1 reserve-to-surplus ratio is less affected by variability in its loss reserves than is an entity operating at 4-to-1 ratio.

Bthe financial position of an entity with a 2-to-1 reserve-to-surplus ratio is more affected by variability in its loss reserves than is an entity operating at 4-to-1 ratio.

Cthe financial position of an entity with a 4-to-1 reserve-to-surplus ratio is less affected by variability in its loss reserves than is an entity operating at 2-to-1 ratio.

Dthe financial position of an entity with a 4-to-1 reserve-to-surplus ratio is more affected by variability in its loss reserves than is an entity operating at 2-to-1 ratio.

Show Suggested Answer

Suggested Answer: B

by Luz at Aug 08, 2024, 09:07 PM

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Emelda

28 days ago

Wait, is this a trick question? What if the answer is 'all of the above' and the real question is 'which of these is the funniest response'? *chuckles*

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Lorrine

3 days ago

B) the financial position of an entity with a 2-to-1 reserve-to-surplus ratio is more affected by variability in its loss reserves than is an entity operating at 4-to-1 ratio.

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Paola

6 days ago

A) the financial position of an entity with a 2-to-1 reserve-to-surplus ratio is less affected by variability in its loss reserves than is an entity operating at 4-to-1 ratio.

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Camellia

1 months ago

This is a classic insurance question. The 4-to-1 ratio means the entity has less cushion to absorb losses, so D is the correct answer. Easy peasy!

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Laurene

2 days ago

I think D is the correct answer.

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Galen

13 days ago

Yes, D is the correct answer because the 4-to-1 ratio means less cushion for losses.

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Darell

17 days ago

I agree, D is the right choice.

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Tamar

19 days ago

I think D is the correct answer.

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Earleen

1 months ago

Aha, I've got it! The higher the ratio, the more exposed the entity is to variability in loss reserves. So the 4-to-1 ratio is more affected than the 2-to-1 ratio. D must be the right answer.

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Graham

2 months ago

Hmm, the higher the reserve-to-surplus ratio, the more sensitive the financial position would be to changes in the loss reserves, right? I'm leaning towards B or D.

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Timothy

2 days ago

D) the financial position of an entity with a 4-to-1 reserve-to-surplus ratio is more affected by variability in its loss reserves than is an entity operating at 2-to-1 ratio.

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Hester

4 days ago

I think you're right, B seems to make more sense.

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Colby

9 days ago

B) the financial position of an entity with a 2-to-1 reserve-to-surplus ratio is more affected by variability in its loss reserves than is an entity operating at 4-to-1 ratio.

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Kenneth

1 months ago

User 2: I agree, a lower reserve-to-surplus ratio means more sensitivity to changes in loss reserves.

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Domingo

1 months ago

User 1: I think it's B) the financial position of an entity with a 2-to-1 reserve-to-surplus ratio is more affected by variability in its loss reserves than is an entity operating at 4-to-1 ratio.

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Mee

1 months ago

A) the financial position of an entity with a 2-to-1 reserve-to-surplus ratio is less affected by variability in its loss reserves than is an entity operating at 4-to-1 ratio.

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Glory

2 months ago

This is a tricky one, the ratios really make a difference in how the financial position is affected by loss reserves. I'll have to think this through carefully.

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