Underwriting

In which type of underwriting does the investment bank act only as the issuer's agent, with no obligation to purchase any shares it cannot sell?

1. A.Firm commitmentHere the underwriter buys the whole issue as principal and is stuck with anything it cannot resell.
2. B.StandbyA standby underwriter commits to buy shares left unsubscribed in a rights offering, so it does take on purchase risk.
3. C.Best effortsCorrect. The underwriter acts as agent and bears no risk on unsold shares.
4. D.Competitive bidCompetitive bid describes how the underwriter is selected, not whether it acts as agent or principal.

Why: In a best efforts underwriting, the underwriter agrees to use its best efforts to sell the issue but never takes ownership of unsold shares. It acts as an agent and earns a fee on what it places; the risk of an undersubscribed deal stays with the issuer. The clue is the phrase no obligation to purchase.

The MIB (Medical Information Bureau) is best described as:

1. A.A database of past claims paid by all insurersThe MIB collects underwriting information, not claims payment records.
2. B.A government agency that approves life insurance applicationsThe MIB is a private, member-supported organization and it approves nothing.
3. C.An information exchange in which member insurers report coded notations that help detect omissions on later applicationsCorrect. Members contribute codes and query the database to spot inconsistencies in what applicants disclose.
4. D.A credit reporting agency that scores applicants for insurabilityCredit and lifestyle information comes through consumer reporting agencies and inspection reports, not the MIB.

Why: The MIB is a nonprofit information exchange whose member insurers report coded notations about conditions found during underwriting. When a later application comes in, a member can check for codes that suggest something was omitted. The codes are brief alerts, not medical records and not underwriting decisions. Review: sources of underwriting information.

Employees who enroll in their employer's group life plan during the eligibility period are generally:

1. A.Individually underwritten using attending physician statementsAPS ordering is an individual-underwriting tool - group plans do not underwrite each timely enrollee.
2. B.Issued individually rated policies based on their healthGroup members receive certificates under one master policy at group rates - no one is individually rated at enrollment.
3. C.Covered without providing individual evidence of insurabilityCorrect. Timely enrollees are accepted automatically; the insurer underwrites the group, not the individuals.
4. D.Required to pass an individual medical examinationIndividual exams defeat the purpose of group underwriting and are not required for on-time enrollment.

Why: Group underwriting evaluates the group as a whole - its size, industry, and turnover - not each member. Employees who enroll when first eligible are covered without individual proof of insurability.

Group life insurance is typically:

1. A.Fully underwritten for each personIndividual underwriting is exactly what this arrangement avoids. Evaluating the group as a whole is what makes coverage reachable for employees who might not qualify on their own.
2. B.Only sold to individualsThis describes individual coverage. The arrangement in the stem is written across a body of people connected by employment or membership.
3. C.Issued without individual underwriting and tied to employmentCorrect - group coverage skips individual exams.
4. D.Always permanent with cash valueGroup coverage is generally term, renewed while the connection lasts, and it typically ends when the employment does. Cash value accumulation is not a standard feature of it.

Why: Group life is usually issued without individual underwriting and is tied to employment or membership.