CPCU 520 exam with correct answers
Which one of the following insurer goals creates a conflict between the profit goal and customer needs
goal? - correct answer-Comply with legal requirements
Which one of the following statements is true with regard to the various forms of ownership of property-
casualty insurers? - correct answer-State and federal governments provide insurance for exposures that
are significant but not commercially insurable.
Insurer A is a proprietary insurer that acts as an insurance marketplace. Its members underwrite any
insurance or reinsurance purchased, and members are primarily partnerships or corporations with
limited liability. Insurer A members belong to syndicates and delegate day-to-day operations to the
syndicate manager. Insurer A is which one of the following? - correct answer-An insurance exchange
Juan has a poor driving record and has been unable to obtain auto liability coverage from private
insurers. Auto liability coverage is mandatory in his state. Since affordability is a concern, Juan wants
auto liability coverage only. Which one of the following is an option for Juan to obtain coverage? - correct
answer-Obtain coverage through his state's residual market
Insurance pools operate either as a syndicate or through - correct answer-Reinsurance.
Due to the possibility of an environmental pollution exposure resulting in extensive losses, several
insurers in a particular state have joined together to insure the exposure. No single insurer was willing to
insure the entire risk. This insurance arrangement is typical of - correct answer-An insurance pool.
Specific measures of an insurer's operational performance are the investment income ratio, overall
operating ratio, and the - correct answer-Return on equity ratio.
Consider the following information reported by an insurance company:
Incurred losses $8 million
Incurred Underwriting Expenses $2 million
Incurred Loss Adjustment Expenses $4 million
,Net Written Premiums $24 million
Earned Premiums $16 million
Which one of the following is the company's trade basis-combined ratio? - correct answer-.833 (The
company's trade basis-combined ratio is .833, which is the loss ratio plus the expense ratio. This is
calculated by: (($8m + $4m) / $16m) + ($2m / $24m).
Which one of the following statements is correct? - correct answer-If insurers become insolvent, future
claims might not be paid and the insurance protection already paid for might become worthless.
The National Association of Insurance Commissioners (NAIC), has - correct answer-No regulatory
authority.
Which one of the following precedes nearly all major insurer insolvencies? - correct answer-Rapid
premium growth
Which one of the following statements is correct regarding discrimination and insurance rating? - correct
answer-Discrimination is essential to insurance rating.
Which one of the following statements is correct regarding rate regulation? - correct answer-An insurer
does not know what its actual expenses will be when a policy is sold.
Which one of the following statements is correct regarding rate regulation? - correct answer-The degree
of rate variation among competing insurers can affect whether or not rates are considered excessive.
Which one of the following statements is correct with regard to the regulation of insurance policies? -
correct answer-Legislation might require that certain standard mandatory policy provisions appear in
certain types of insurance policies.
The state regulation of unfair trade practices concerning the business of insurance is required under the -
correct answer-McCarran Act.
, To prevent insurer insolvency and unfair discrimination against an insurance consumer, insurance
regulators do which one of the following? - correct answer-Constrain insurers' ability to accept, modify,
or decline applications for insurance
Which one of the following would likely be indicated by a notation next to a specific classification in an
insurer's underwriting guidelines? - correct answer-The need for the underwriter to get management
approval before proceeding
Depending on the type of insurance, insurers use automated underwriting systems to - correct answer-
Encode underwriting guidelines.
Which one of the following is determined by a company's underwriting policy? - correct answer-
Composition of the insurer's book of business
Which one of the following is a major constraint of underwriting policy? - correct answer-Reinsurance
All of the following statements are true regarding the factors affecting the formation of an insurer's
underwriting policy, EXCEPT: - correct answer-The higher an insurer's premium-to-surplus ratio, the
greater its ability to expand premium writings.
Which one of the following statements is correct with regard to underwriting guidelines? - correct
answer-Compliance with underwriting guidelines ensures selection of loss exposures commensurate
with planned rate levels.
Rating agencies such as Dun & Bradstreet (D&B) provide - correct answer-Data on the applicant's
financial status.
Which one of the following is the best example of an insurer's risk control activities generating additional
revenue for the insurer? - correct answer-An insurer provides industrial hygiene services to a self-insured
firm for a fee.
The risk control service of conducting a physical survey consists of - correct answer-Collecting
underwriting information on a customer's loss exposures.
Which one of the following insurer goals creates a conflict between the profit goal and customer needs
goal? - correct answer-Comply with legal requirements
Which one of the following statements is true with regard to the various forms of ownership of property-
casualty insurers? - correct answer-State and federal governments provide insurance for exposures that
are significant but not commercially insurable.
Insurer A is a proprietary insurer that acts as an insurance marketplace. Its members underwrite any
insurance or reinsurance purchased, and members are primarily partnerships or corporations with
limited liability. Insurer A members belong to syndicates and delegate day-to-day operations to the
syndicate manager. Insurer A is which one of the following? - correct answer-An insurance exchange
Juan has a poor driving record and has been unable to obtain auto liability coverage from private
insurers. Auto liability coverage is mandatory in his state. Since affordability is a concern, Juan wants
auto liability coverage only. Which one of the following is an option for Juan to obtain coverage? - correct
answer-Obtain coverage through his state's residual market
Insurance pools operate either as a syndicate or through - correct answer-Reinsurance.
Due to the possibility of an environmental pollution exposure resulting in extensive losses, several
insurers in a particular state have joined together to insure the exposure. No single insurer was willing to
insure the entire risk. This insurance arrangement is typical of - correct answer-An insurance pool.
Specific measures of an insurer's operational performance are the investment income ratio, overall
operating ratio, and the - correct answer-Return on equity ratio.
Consider the following information reported by an insurance company:
Incurred losses $8 million
Incurred Underwriting Expenses $2 million
Incurred Loss Adjustment Expenses $4 million
,Net Written Premiums $24 million
Earned Premiums $16 million
Which one of the following is the company's trade basis-combined ratio? - correct answer-.833 (The
company's trade basis-combined ratio is .833, which is the loss ratio plus the expense ratio. This is
calculated by: (($8m + $4m) / $16m) + ($2m / $24m).
Which one of the following statements is correct? - correct answer-If insurers become insolvent, future
claims might not be paid and the insurance protection already paid for might become worthless.
The National Association of Insurance Commissioners (NAIC), has - correct answer-No regulatory
authority.
Which one of the following precedes nearly all major insurer insolvencies? - correct answer-Rapid
premium growth
Which one of the following statements is correct regarding discrimination and insurance rating? - correct
answer-Discrimination is essential to insurance rating.
Which one of the following statements is correct regarding rate regulation? - correct answer-An insurer
does not know what its actual expenses will be when a policy is sold.
Which one of the following statements is correct regarding rate regulation? - correct answer-The degree
of rate variation among competing insurers can affect whether or not rates are considered excessive.
Which one of the following statements is correct with regard to the regulation of insurance policies? -
correct answer-Legislation might require that certain standard mandatory policy provisions appear in
certain types of insurance policies.
The state regulation of unfair trade practices concerning the business of insurance is required under the -
correct answer-McCarran Act.
, To prevent insurer insolvency and unfair discrimination against an insurance consumer, insurance
regulators do which one of the following? - correct answer-Constrain insurers' ability to accept, modify,
or decline applications for insurance
Which one of the following would likely be indicated by a notation next to a specific classification in an
insurer's underwriting guidelines? - correct answer-The need for the underwriter to get management
approval before proceeding
Depending on the type of insurance, insurers use automated underwriting systems to - correct answer-
Encode underwriting guidelines.
Which one of the following is determined by a company's underwriting policy? - correct answer-
Composition of the insurer's book of business
Which one of the following is a major constraint of underwriting policy? - correct answer-Reinsurance
All of the following statements are true regarding the factors affecting the formation of an insurer's
underwriting policy, EXCEPT: - correct answer-The higher an insurer's premium-to-surplus ratio, the
greater its ability to expand premium writings.
Which one of the following statements is correct with regard to underwriting guidelines? - correct
answer-Compliance with underwriting guidelines ensures selection of loss exposures commensurate
with planned rate levels.
Rating agencies such as Dun & Bradstreet (D&B) provide - correct answer-Data on the applicant's
financial status.
Which one of the following is the best example of an insurer's risk control activities generating additional
revenue for the insurer? - correct answer-An insurer provides industrial hygiene services to a self-insured
firm for a fee.
The risk control service of conducting a physical survey consists of - correct answer-Collecting
underwriting information on a customer's loss exposures.
