Question

Which of the following statement is correct?

Select one:

a. Cat bonds are also known as "catastrophe-linked bonds."

b. A typical HO-3 type of homeowners’ insurance policy never provides coverage for “other structures” of a house based on the percentage of the dwelling such as it is stated as “10 percent of dwelling coverage.”

c. All the answers are incorrect.

d. Since the losses tend not to be correlated across policyholders, homeowners’ insurance policies commonly include coverage for earthquake and flood.

e. Contingent equity is issued by the investment banks and the insurance firms that pre-commit to purchase new common stock from an investment bank at agreed upon prices if a certain contingency occurs, such as an earthquake.

Answer 1

The correct Statement is option a Cat bonds are also known as "catastrophe-linked bonds.

Because Catastrophe linked bonds are termed as cat bonds.

Option B is incorrect because  HO-3 type of homeowners’ insurance policy provides coverage for other structure of a house based on the percentage of the dwelling such as it is stated as “10 percent of dwelling coverage but in problem it given as it never provides. So option b is wrong.

Option D is incorrect because since the losses tend to be correlated across policyholders homeowners insurance policies commonly include coverage for earthquake and flood but in problem it given as it not tends. So option d is wrong.

Option E is incorrect because contingent equity issued by the investment banks and the insurance firms that pre-commit to purchase new common stock from an investment bank at agreed upon prices if a certain contingency occurs, such as an earthquake statement is not correct

Option C is incorrect because option A is correct