CPCU 540 EXAM SCRIPT 2026
COMPLETE QUESTIONS AND
ANSWERS VERIFIED SOLUTIONS
◉ Unearned Premium Reserve. Answer: An insurer liability
representing the amount of premiums received from the policyholders
that are not yet earned.
◉ Loss Adjustment Expense Reserves. Answer: Estimates of the future
expense that an insurer expects to incur to investigate, defend, and settle
claims for the losses that have already occurred.
◉ Combined Ratio. Answer: The sum of the loss ratio and the expense
ratio.
◉ Two-year Overall Operating Ratio. Answer: Profitability Ratio
An insurer's combined ratio minus its investment income ratio, measured
over the past two years.
Acceptable Value: Less than 100%
◉ Investment Yield Rato. Answer: Profitability Ratio
Indicates the total return on investments for an insurer's investment
operations.
Divides net investment income earned for the year by the average cash
and invested assets for the year.
Acceptable Value: 3% to 6.5%
, ◉ Gross Change in Policyholders' Surplus Ratio. Answer: Profitability
Ratio
Measures the percentage change in policyholders' surplus over the past
year compared with the previous year.
Acceptable Value: -10% to 50%
◉ Change in Adjusted Policyholders' Surplus Ratio. Answer:
Profitability Ratio
Measures changes in surplus from an insurer's core operations (Surplus
changes related to surplus notes, capital changes, and surplus
adjustments are admitted).
Acceptable Value: -10% to 25%
◉ Gross Premiums Written to Policyholders' Surplus Ratio. Answer:
Overall Ratio
Measures an insurer's ability to absorb losses before the effects of
reinsurance transactions are considered.
Acceptable Value: Less than 900%
◉ Net Premiums Written to Policyholders' Surplus Ratio. Answer:
Overall Ratio
Gauges insurer's retained insurance exposure after reinsurance
transactions.
Acceptable Value: Less than 300%
COMPLETE QUESTIONS AND
ANSWERS VERIFIED SOLUTIONS
◉ Unearned Premium Reserve. Answer: An insurer liability
representing the amount of premiums received from the policyholders
that are not yet earned.
◉ Loss Adjustment Expense Reserves. Answer: Estimates of the future
expense that an insurer expects to incur to investigate, defend, and settle
claims for the losses that have already occurred.
◉ Combined Ratio. Answer: The sum of the loss ratio and the expense
ratio.
◉ Two-year Overall Operating Ratio. Answer: Profitability Ratio
An insurer's combined ratio minus its investment income ratio, measured
over the past two years.
Acceptable Value: Less than 100%
◉ Investment Yield Rato. Answer: Profitability Ratio
Indicates the total return on investments for an insurer's investment
operations.
Divides net investment income earned for the year by the average cash
and invested assets for the year.
Acceptable Value: 3% to 6.5%
, ◉ Gross Change in Policyholders' Surplus Ratio. Answer: Profitability
Ratio
Measures the percentage change in policyholders' surplus over the past
year compared with the previous year.
Acceptable Value: -10% to 50%
◉ Change in Adjusted Policyholders' Surplus Ratio. Answer:
Profitability Ratio
Measures changes in surplus from an insurer's core operations (Surplus
changes related to surplus notes, capital changes, and surplus
adjustments are admitted).
Acceptable Value: -10% to 25%
◉ Gross Premiums Written to Policyholders' Surplus Ratio. Answer:
Overall Ratio
Measures an insurer's ability to absorb losses before the effects of
reinsurance transactions are considered.
Acceptable Value: Less than 900%
◉ Net Premiums Written to Policyholders' Surplus Ratio. Answer:
Overall Ratio
Gauges insurer's retained insurance exposure after reinsurance
transactions.
Acceptable Value: Less than 300%
