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Answer: The leverage ratio, as defined by assets-to-equity, is likely to be higher for a life insurance company than a property-casualty company (ceteris paribus)
**B is true.** - **Life insurance companies** generally have **higher leverage** (assets-to-equity) than **property-casualty (P&C)** insurers, all else equal, because their liabilities are often long-dated and supported by large asset portfolios. - **A is false**: the EU uses **Solvency II**, not Basel IV, for insurance capital regulation. - **C is false**: **unearned premiums are liabilities**, not assets. - **D is false**: insurance regulation in the U.S. is primarily handled at the **state level**, not the federal level, and policyholder protection is provided through **state guaranty funds**, not a permanent federal fund.
Author: Manit Arora
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Question-21.5.2. Given their obligations (insurance is a legal contract), insurance companies have internal and external (i.e., regulatory) capital requirements. In regard to regulations, capital, and capital requirements at insurance companies, which of the following statements is TRUE?
A
In the European Union (EU), Basel IV regulates the capital requirements for international (i.e., cross-border) insurance companies
B
The leverage ratio, as defined by assets-to-equity, is likely to be higher for a life insurance company than a property-casualty company (ceteris paribus)
C
On the insurance company’s balance sheet, the unearned premiums are assets that are matched by liabilities such as investments in corporate bonds
D
In the United States, regulation of insurance companies is primarily conducted at the Federal level and the Federal (U.S.) government maintains a permanent fund to protect the policyholders of chartered insurance companies
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