Certified Financial Consultant (CFC) Practice Exam

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Prepare for the Certified Financial Consultant Exam. Enhance your understanding with detailed questions, hints, and explanations. Boost your confidence for the CFC test!

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Which of the following is a TRUE statement concerning an insurer's earned surplus?

Earned Surplus finances a company's growth
Earned Surplus are unassigned funds that are required to be reported on the insurer's annual statement
It is from this money that death or medical claims are paid
Earned Surplus funds a loan for a company

The correct answer is: Earned Surplus are unassigned funds that are required to be reported on the insurer's annual statement

The statement regarding earned surplus that is accurate focuses on the nature and reporting requirements of these funds. Earned surplus, also known as retained earnings, represents the accumulated profits of an insurer that have not been distributed to shareholders. This surplus is crucial for financial stability and is a key indicator of the insurer's ability to absorb losses and meet obligations. When it comes to financial reporting, regulatory bodies require insurers to disclose their financial position accurately. This includes reporting the earned surplus as unassigned funds in the insurer's annual statement. These unassigned funds are part of the equity section of the balance sheet, indicating the portion of profits that has not been allocated for specific uses, such as dividends or reserves. This reporting requirement reflects the financial health of the insurer and provides transparency for regulators and policyholders. Understanding this concept is essential for recognizing how insurers maintain their financial standing and ensure they can cover future claims and operational costs.