What relies on the insurer to use reasonable judgments to determine the types and percentages of assets being acquired?

Question

Options

• ATracking performance
• BPercentage investment
• CPrudent Person method
• DNone of the above

• A
  6% (2)
• B
  6% (2)
• C
  74% (25)
• D
  15% (5)

Explanation

Prudent Person Method is correct because it is an investment standard that requires insurers (and other fiduciaries) to exercise reasonable judgment and care when selecting asset types and allocation percentages - essentially asking "what would a prudent, knowledgeable person do?" rather than following a rigid formula.

Option A (Tracking performance) is wrong because tracking performance refers to monitoring how investments are doing after the fact, not a method for making acquisition decisions. Option B (Percentage investment) is wrong because while it sounds related, it describes a rule-based approach that prescribes fixed allocation limits - the opposite of the judgment-based flexibility the question describes.

Memory tip: Think of the word prudent - it means "wise and careful." The Prudent Person standard puts the burden on the insurer to be wise and careful in choosing investments, rather than following a checklist. If the question mentions "reasonable judgment" and "types and percentages," that phrase is your direct signal pointing to Prudent Person.

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