Question #9
Reading: Reading 11 Analysis of Financial Institutions
PDF File: Reading 11 Analysis of Financial Institutions.pdf
Page: 4
Status: Correct
Correct Answer: A
Question
Which of the following statements regarding Property and Casualty insurance institutions is most likely correct?
Answer Choices:
A. Due to the uncertainty of payout timings and levels, the institution will usually invest in high-risk, longer term assets
B. The suitability of assets held can be analyzed by observing the status of the assets in the fair value hierarchy. A majority of level 3 reported values indicates an appropriate asset base
C. The priority in the selection of assets should be liquidity
Explanation
Due to the uncertain nature of required payouts, liquidity is the key concern. High-risk,
long term assets are therefore not appropriate. Level 1 valuations would suggest liquid
assets, as they are priced using identical trading (and hence liquid) assets.