Page 1 of 65
CPCU 520 CHAPTER 7 2026 EXAM COMPLETE
(214) CURRENT TESTING QUESTIONS AND
DETAILED CORRECT
ANSWERS|GUARANTEED PASS.
CPCU
Maximize your success with this CPCU 520 Chapter 7 Exam,
designed to assess essential knowledge of insurance regulation
and compliance principles. It focuses on licensing
requirements, solvency regulation, market conduct standards,
and regulatory enforcement in the insurance industry. The exam
strengthens analytical thinking and understanding of legal
frameworks governing insurance operations. Suitable for
insurance and risk management certification candidates.
As a surplus lines insurer, Special Surplus Insurance
provides umbrella liability and excess management liability
policies at high limits of coverage. Which one of the following
statements is true regarding charges to increase limits above
the basic limit?
Select one:
A. Loss severity increases uniformly with increased coverage
limits, and must be priced accordingly.
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B. Charges to increase liability limits may not exceed 100
percent of the charge for basic coverage limits.
C. The variability of losses in higher coverage layers is lesser
than for the basic limit losses, allowing credible pricing for
higher limits.
D. Higher limits can require a portion of the coverage to be
reinsured, and the additional expense must be included in
the rate. ✓ ✓ ...... ANSWER ....... D. Higher limits can
require a portion of the coverage to be reinsured, and the
additional expense must be included in the rate.
David, an actuary, is explaining that insurance rates should
have five characteristics. Which one of the following
correctly describes what David means when he says that
rates should provide for contingencies?
Select one:
A. The rates should reflect the amount of risk the insured is
exposed to.
B. The rates should allow for the insurer to earn a fair profit.
C. The rates should be based on the most recent claims
information available.
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D. The rates should provide for unexpected variations in
losses and expenses. ✓ ✓ ...... ANSWER ....... D. The
rates should provide for unexpected variations in losses and
expenses.
As an actuary for a large property-casualty insurer, Maggie
focuses on ratemaking, loss reserve adequacy, and
Select one:
A. Risk selection
B. Accurately classifying loss exposures.
C. Reinsurance negotiations.
D. Estimating unpaid liabilities. ✓ ✓ ...... ANSWER .......
D. Estimating unpaid liabilities.
Which one of the following involves an apples-to-apples
exact matching of losses, premiums, and exposure units to a
specific policy?
Select one:
A. Policy-year data collection
B. Accident-year data collection
C. Earned exposure-year data collection
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D. Calendar-year data collection ✓ ✓ ...... ANSWER .......
A. Policy-year data collection
nsurer X has $8 million in incurred losses. Its earned
exposure units are 200,000. The pure premium is
Select one:
A. $ 40.
B. $ 80.
C. $400.
D. $800. ✓ ✓ ...... ANSWER ....... A. $ 40.Correct. The
pure premium is $40, determined by $8 million / 200,000 =
$40.
Alpha Insurance Company (AIC) has incurred automobile
insurance losses of $6 million and earned exposure units of
120,000 car-years. The company's expenses total $840,000.
AIC's management wants to include a factor for profits and
contingencies of five percent. Using the pure premium
ratemaking method and rounding to the nearest whole
dollar, which one of the following represents the rate per
exposure unit that AIC needs to charge for automobile
insurance?
CPCU 520 CHAPTER 7 2026 EXAM COMPLETE
(214) CURRENT TESTING QUESTIONS AND
DETAILED CORRECT
ANSWERS|GUARANTEED PASS.
CPCU
Maximize your success with this CPCU 520 Chapter 7 Exam,
designed to assess essential knowledge of insurance regulation
and compliance principles. It focuses on licensing
requirements, solvency regulation, market conduct standards,
and regulatory enforcement in the insurance industry. The exam
strengthens analytical thinking and understanding of legal
frameworks governing insurance operations. Suitable for
insurance and risk management certification candidates.
As a surplus lines insurer, Special Surplus Insurance
provides umbrella liability and excess management liability
policies at high limits of coverage. Which one of the following
statements is true regarding charges to increase limits above
the basic limit?
Select one:
A. Loss severity increases uniformly with increased coverage
limits, and must be priced accordingly.
, Page 2 of 65
B. Charges to increase liability limits may not exceed 100
percent of the charge for basic coverage limits.
C. The variability of losses in higher coverage layers is lesser
than for the basic limit losses, allowing credible pricing for
higher limits.
D. Higher limits can require a portion of the coverage to be
reinsured, and the additional expense must be included in
the rate. ✓ ✓ ...... ANSWER ....... D. Higher limits can
require a portion of the coverage to be reinsured, and the
additional expense must be included in the rate.
David, an actuary, is explaining that insurance rates should
have five characteristics. Which one of the following
correctly describes what David means when he says that
rates should provide for contingencies?
Select one:
A. The rates should reflect the amount of risk the insured is
exposed to.
B. The rates should allow for the insurer to earn a fair profit.
C. The rates should be based on the most recent claims
information available.
, Page 3 of 65
D. The rates should provide for unexpected variations in
losses and expenses. ✓ ✓ ...... ANSWER ....... D. The
rates should provide for unexpected variations in losses and
expenses.
As an actuary for a large property-casualty insurer, Maggie
focuses on ratemaking, loss reserve adequacy, and
Select one:
A. Risk selection
B. Accurately classifying loss exposures.
C. Reinsurance negotiations.
D. Estimating unpaid liabilities. ✓ ✓ ...... ANSWER .......
D. Estimating unpaid liabilities.
Which one of the following involves an apples-to-apples
exact matching of losses, premiums, and exposure units to a
specific policy?
Select one:
A. Policy-year data collection
B. Accident-year data collection
C. Earned exposure-year data collection
, Page 4 of 65
D. Calendar-year data collection ✓ ✓ ...... ANSWER .......
A. Policy-year data collection
nsurer X has $8 million in incurred losses. Its earned
exposure units are 200,000. The pure premium is
Select one:
A. $ 40.
B. $ 80.
C. $400.
D. $800. ✓ ✓ ...... ANSWER ....... A. $ 40.Correct. The
pure premium is $40, determined by $8 million / 200,000 =
$40.
Alpha Insurance Company (AIC) has incurred automobile
insurance losses of $6 million and earned exposure units of
120,000 car-years. The company's expenses total $840,000.
AIC's management wants to include a factor for profits and
contingencies of five percent. Using the pure premium
ratemaking method and rounding to the nearest whole
dollar, which one of the following represents the rate per
exposure unit that AIC needs to charge for automobile
insurance?
