AU60 Practice Questions And Answers
Apbuildingpownerphasphiredpaproofingpcontractorptopreplaceptheproofpofpapbuildingplocatedpon
papbusypurbanpstreet.pThepbuildingpownerpwantsptopbepprotectedpforpanypclaimspresultingpfro
mptheproofingpcontractors'pworkponphispproperty.pWhichponepofpthepfollowingpmethodspwoul
dpbepmostpbeneficialptopthepbuildingpowner?p-pCORRECTppANSWER-
Apseparatepownerspandpcontractorspprotectivepliabilityppolicypinpthepnamepofpthepbuildingpo
wner.
Apcompanypshowspthepfollowingpamountspinpitspendpofpyearpfinancialpstatements,pitspworkin
gpcapitalpisp-pCORRECTppANSWER-$6pmillion.
Apcompany'spcommon-
sizepstatementplistsptwopyears,p20X3pandp20X4.pInp20X3,pthepinventoriesplinepwasp5%,pandp
inp20X4pthepinventoriesplinepwasp7%.pWhichponepofpthepfollowingpcouldpanpunderwriterpinfer
pfrompthispinformation?p-pCORRECTppANSWER-
Theppercentagepofpinventoriesptotalpassetspincreased.
ApdeterioratingplosspratiopledpthepVicepPresidentpofpUnderwritingpatpRSTpInsurancepCompa
nyptoporderpreunderwritingpofpRSTppropertypinsuranceppolicies.pAsppartpofpthepprocess,pshep
orderedpapreportptopanalyzepresultspofpsmallerpsegmentspofpthepbusiness.pThispreportpispaps
napshotpatpapgivenppointpinptimepthatpprovidespdataponpspecificpcharacteristicspofptheppolicie
spinpthepbookpofpbusiness.pThispreportpispcalledpa(n)p-pCORRECTppANSWER-Riskpprofile.
ApdroughtpinpthreepstatespwherepPQRpInsurancepCompanypwritespcoveragepleadptopanpund
erwritingpdirectiveptopnotpwritepbusinesspinpareaspsusceptibleptopwildfires.pThreepmonthspaft
erpthepdirectivepwaspissued,pthepVicepPresidentpofpUnderwritingporderedpapreviewpofprecentp
underwritingpfilesptopensurepthatpunderwriterspwerepadheringptopthispguideline.pThispreviewp
ispcalledpa(n)p-pCORRECTppANSWER-Underwritingpaudit.
Apgrouppofppoliciespwithpapcommonpcharacteristic,psuchpaspterritoryporptypepofpcoverage,porp
allppoliciespwrittenpbypapparticularpinsurer,pproducer,porpagencypispreferredptopasp-
pCORRECTppANSWER-Apbookpofpbusiness.
Approprietorpofpapsmall-scalepoperationpproprietorshippisp-pCORRECTppANSWER-
Entitledptopallpthepprofitspandpresponsiblepforpallpliabilities.
Apratingpplanpthatpadjustspthepinsuredppremiumpforpsavingspinpinsurancepcompanypcommis
sionspispcalledp-pCORRECTppANSWER-Expensepmodification.
,Apsituationpthatpoccurspbecauseppeoplepwithpthepgreatestpprobablypofplosspareptheponesplike
lyptoppurchasepinsurancepispknownpasp-pCORRECTppANSWER-Adversepselection.
ABCpInsurancepCompanypsellsppropertypinsurance.pThepcompanypispreunderwritingpitspbo
okpofpbusinesspatpmidyear.pThepcompanyphopedptopretainp80ppercentpofppolicyowners.pThep
retentionpratepisp82ppercentpandptheplosspratioponpthepretainedpbusinesspisp62ppercent.pThep
companyphadphopedptopwritep$2.5pmillionpinppremiumspforpthepyear,pandpthepmidyearpvaluep
wasp$1.3pmillionpinppremiumspwritten.pThepnewppolicypgoalpforpthepyearpwasp6,000pandp3,5
00pnewppoliciesphadpbeenpwrittenpatpmidyear.pTheplosspratiopgoalpforpthepyearpwasp65pperce
nt,pandptheplosspratiopatpmidyearpwasp68ppercent.pAssumingppremiumpwritingspandplossespa
repdistributedpuniformlypoverpthepyear,pwhatpshouldpABCpInsurancepCompanypconcludepab
outpitspperformancepatpmidyear?p-pCORRECTppANSWER-
Newpbusinesspispcontributingpnegativelyptoptheplosspratio.
ABCpInsurancepCompany'spactuaryphaspcalculatedptheppureppremiumpforpthepcompany'sph
omeowner'spinsuranceplinepasp$40.pFixedpexpensespforptheplineparep$2.50pperpexposurepun
itpandpvariablepexpensesparep12ppercent.pThepcompany'sploadingpforpprofitspandpcontingen
ciespisp5ppercent.pUsingptheppureppremiumpratemakingpmethodpandproundingptopthepneares
tpwholepdollar,pwhichponepofpthepfollowingpispthepratepperpexposurepunitpthatpABCpneedsptopc
harge?p-pCORRECTppANSWER-$51.
ABCpInsurancepCompany'spratiopofppremiumsptopsurpluspisp2ptop1.pIfpthepstateprequirementp
wherepABCptransactspbusinesspisp3ptop1,pthenpABCp-pCORRECTppANSWER-
Ispmeetingpthepstate'spsurplusprequirement.
ABCpinsurancepispconsideringpenteringpnewpstatespasppartpofpitspgrowthpplan.pThepexecutiv
espofpABCpdecidepnotptoppursuepnewpbusinesspinplow-
incomepareaspofpstatespandpprovidepunderwriterspwithpmapspindicatingpthepareaspfrompwhi
chptheyparepnotptopacceptpapplications.pThisppositionplikelypviolatespregulationspthatp-
pCORRECTppANSWER-
Constrainpinsurerspabilityptopaccept,pmodify,porpdeclineplosspexposures.
ABCpRetailpshowspthepfollowingpamountspinpitspendpofpyearpfinancialpstatements:
Accountspreceivablep=p$500,000
Inventoryp=p$5,000,000
Creditpsalesp=p$10,000,000
Costpofpgoodspsoldp=p$20,000,000
Basedponpthesepfigures,pitspaccountspreceivablepturnoverpratiopisp-pCORRECTppANSWER-
20ptimes.
AcceptspfrompthepconsolidatedpsheetpforpAJDpRetail,pInc.p(AJD)parepshownpbelow.pInpitspco
nsolidatedpincomepstatementpforpthepsamepperiod,pshownpinpthousands,pAJDpreportsptotalp
salespofp$23,000,pconsistingpofpcashpsalespofp$18,000pandpcreditpsalespofp$5,000.pCostpofp
goodspsoldpispshownpatp$16,000.pUsingpthispinformation,pwhichpofpthepfollowingpispthepinven
torypturnoverpratiopforpAJD?
,Inventoryp=p5,000p-pCORRECTppANSWER-3.2.
AcepWoodworkingpCompanypmakesphouseholdpfurniture.pWhichponepofpthepfollowingpbestp
describespanpexpensepthatpshouldpbepclassifiedpaspanpoperatingpexpenseponpAce'spincome
pstatement?p-pCORRECTppANSWER-Utilitypchargespforpthepmanufacturingpplant.
Actuariespandpunderwriterspbothphaveprolespinppricingpinsurancepproducts.pWhichponepofpth
epfollowingpispactuaries'pprimaryppricingprole?p-pCORRECTppANSWER-Ratemaking.
Alanpispapcommercialpinsurancepunderwriter.pHepispreviewingpthepapplicationpforpBp&pLpRest
aurant.pBp&pLpispopenpfromp6pAMptop2pPMpdailypandpofferspbothpseatedpdiningpandptake-
outpservicepforpbreakfastpandplunch.pTheprestaurantphadpapgoodpreputationpandpfinancialpre
portspwerepstrong,pbutpAlanpwaspconcernedpwhenpheplearnedpthatpthepriskpwasppartpofpapfra
nchisepagreement.pThepfranchiseparrangementpraisespapconcernpaboutpwhichponepofpthepfo
llowingpleadershippcharacteristics?p-pCORRECTppANSWER-Operationalpauthority.
Alexphaspbeenpapcommercialpunderwriterpforp2pyears.pHephaspreceivedpapmulti-
linespsubmissionpforpapcompanypinpanpindustrypthatphepispnotpverypfamiliarpwith.pWhichponep
ofpthepfollowingpexternalpresourcespwouldpgivepAlexpapgeneralpdescriptionpofpthepindustriesp
operationspandptheplevelpofphazardpbyplinepofpinsurance.p-pCORRECTppANSWER-
Best'spUnderwritingpGuide.
Allpofpthepfollowingparepcharacteristicspofpindependentpcontractors,pEXCEPT:p-
pCORRECTppANSWER-
Whenpanpindependentpcontractor'spworkpispunsatisfactory,pthepusualprecoursepisptopdischar
gepthepcontractor.
Allpofpthepfollowingparepcommonpprofitabilitypmeasurespusedpinpratiopanalysis,pEXCEPT:p-
pCORRECTppANSWER-Turnoverpofpassets.
Allpofpthepfollowingparepguidelinespforpeffectivepcommunication,pEXCEPT:p-
pCORRECTppANSWER-Avoidpsettingptimelinespandpdeadlines.
Allpofpthepfollowingparepobjectivespofpratepregulation,pEXCEPT:p-pCORRECTppANSWER-
Ratesppromotepavailabilitypandpaffordabilitypofpinsurance.
Allpofpthepfollowingparepreasonspthatpanpunderwriterpmightpwantptopobtainpinformationpinpadd
itionptopthepapplication,pEXCEPT:p-pCORRECTppANSWER-Toppostponepapdecision.
Allpofpthepfollowingparepunderwritingpactivitiesptypicallypperformedpbypcorporatepunderwriter
s,pEXCEPT:p-pCORRECTppANSWER-Supportpproducerspandpinsureds.
Allpofpthepfollowingpcouldpbepconsideredpthreatsptopanporganization'spoperationspandpsuppl
ypchain,pEXCEPT:p-pCORRECTppANSWER-Apcustomerpfallingpinsidepthepbuilding.
, AlphapInsurancepCompanyp(AIC)phaspincurredpautomobilepinsuranceplossespofp$6pmillionpa
ndpearnedpexposurepunitspofp120,000pcar-
years.pThepcompany'spexpensesptotalp$840,000.pAIC'spmanagementpwantsptopincludepapfa
ctorpforpprofitspandpcontingenciespofpfiveppercent.pUsingptheppureppremiumpratemakingpmet
hodpandproundingptopthepnearestpwholepdollar,pwhichponepofpthepfollowingprepresentspthepra
tepperpexposurepunitpthatpAICpneedsptopchargepforpautomobilepinsurance?p-
pCORRECTppANSWER-$60.
AmeliapispapcommercialppropertypunderwriterpinpBoston.pShepispworkingponpaplargepnewpbu
sinesspsubmissionpwithptwoplocationspinpCalifornia.pShepdecidedptopconsultpanpexternalpexp
ertpdueptopherpconcernspaboutpwildfirepexposure.pAmeliapcanpusepthepknowledgepgainedpfr
ompthepexternalpwildfirepexpertptopdopallpofpthepfollowing,pEXCEPT:p-
pCORRECTppANSWER-Becomepanpinternalpwildfirepexpertpatpherporganization.
Anpanalystpispcomparingpthepfinancialpdatapofptwopcompaniespthatpcompetepinpthepsamepind
ustry,pCompanypApandpCompanypB.pEachpofptheptwopcompaniesphaspthepsamepreturnponpa
ssetspratiop(ROA),pandpthepanalystpwantsptopunderstandphowpeachpispusingpitspresourcespto
pachievepthispresult.pFurtherpanalysisprevealspthatpCompanypAphaspaplowerpassetpturnoverpr
atiopthanpCompanypB.pThispanalysispindicatespthatp-pCORRECTppANSWER-
CompanypBpispgeneratingpaphigherplevelpofpsalespinpproportionptopitspassetspthanpCompanyp
A.
Anpinsurancepcompanypdecidedptopreunderwritepitspbookpofphomeownerspinsuranceppolicie
s.pThepfirstpsteppinpthepreunderwritingpprocesspisptop-pCORRECTppANSWER-
Analyzepthepbookpofpbusiness.
Anpinsurancepcompanypmustphavepadequateppolicyholderspsurpluspifpitpwishesptop-
pCORRECTppANSWER-Increasepitspwrittenppremiumpvolume.
Anpinsurancepcompanypmustphavepadequateppolicyholders'psurpluspifpitpwishesptop-
pCORRECTppANSWER-Increasepitspwrittenppremiumpvolume.
Anpinsurancepcompanypneedsptophirepanpemployeepwithpknowledgepofpinsuranceppolicypfor
mspandpthepabilityptoprelateppolicypprovisionsptoptheplosspexposurespofpindividualppolicyhold
ers.pTheppersonpwillpalsopprepareppremiumpquotespandpprocesspcancellations.pWhichponep
ofpthepfollowingpemployeespwouldpbestpsuitpthepcompany'spneeds?p-
pCORRECTppANSWER-Fieldpunderwriter.
Anpinsurerpreceivedp2pautomobilepinsurancepapplications.pThepfirstpapplicantpispagep35,pma
le,pandphaspapcleanpdrivingprecord.pThepsecondpapplicationpispagep35,pfemale,phasphadpthre
epspeedingpviolationspandpappriorpaccident.pThepinsurerpacceptspbothprisks,pbutpchargespth
epsecondpapplicantpaphigherppremium.pWhichponepofpthepfollowingpstatementspaboutpthisps
cenariopispcorrect?p-pCORRECTppANSWER-
Regulationspallowpthepinsurerptopchargepmorepforpinsuredspwithppoorpdrivingpexperience.
Apbuildingpownerphasphiredpaproofingpcontractorptopreplaceptheproofpofpapbuildingplocatedpon
papbusypurbanpstreet.pThepbuildingpownerpwantsptopbepprotectedpforpanypclaimspresultingpfro
mptheproofingpcontractors'pworkponphispproperty.pWhichponepofpthepfollowingpmethodspwoul
dpbepmostpbeneficialptopthepbuildingpowner?p-pCORRECTppANSWER-
Apseparatepownerspandpcontractorspprotectivepliabilityppolicypinpthepnamepofpthepbuildingpo
wner.
Apcompanypshowspthepfollowingpamountspinpitspendpofpyearpfinancialpstatements,pitspworkin
gpcapitalpisp-pCORRECTppANSWER-$6pmillion.
Apcompany'spcommon-
sizepstatementplistsptwopyears,p20X3pandp20X4.pInp20X3,pthepinventoriesplinepwasp5%,pandp
inp20X4pthepinventoriesplinepwasp7%.pWhichponepofpthepfollowingpcouldpanpunderwriterpinfer
pfrompthispinformation?p-pCORRECTppANSWER-
Theppercentagepofpinventoriesptotalpassetspincreased.
ApdeterioratingplosspratiopledpthepVicepPresidentpofpUnderwritingpatpRSTpInsurancepCompa
nyptoporderpreunderwritingpofpRSTppropertypinsuranceppolicies.pAsppartpofpthepprocess,pshep
orderedpapreportptopanalyzepresultspofpsmallerpsegmentspofpthepbusiness.pThispreportpispaps
napshotpatpapgivenppointpinptimepthatpprovidespdataponpspecificpcharacteristicspofptheppolicie
spinpthepbookpofpbusiness.pThispreportpispcalledpa(n)p-pCORRECTppANSWER-Riskpprofile.
ApdroughtpinpthreepstatespwherepPQRpInsurancepCompanypwritespcoveragepleadptopanpund
erwritingpdirectiveptopnotpwritepbusinesspinpareaspsusceptibleptopwildfires.pThreepmonthspaft
erpthepdirectivepwaspissued,pthepVicepPresidentpofpUnderwritingporderedpapreviewpofprecentp
underwritingpfilesptopensurepthatpunderwriterspwerepadheringptopthispguideline.pThispreviewp
ispcalledpa(n)p-pCORRECTppANSWER-Underwritingpaudit.
Apgrouppofppoliciespwithpapcommonpcharacteristic,psuchpaspterritoryporptypepofpcoverage,porp
allppoliciespwrittenpbypapparticularpinsurer,pproducer,porpagencypispreferredptopasp-
pCORRECTppANSWER-Apbookpofpbusiness.
Approprietorpofpapsmall-scalepoperationpproprietorshippisp-pCORRECTppANSWER-
Entitledptopallpthepprofitspandpresponsiblepforpallpliabilities.
Apratingpplanpthatpadjustspthepinsuredppremiumpforpsavingspinpinsurancepcompanypcommis
sionspispcalledp-pCORRECTppANSWER-Expensepmodification.
,Apsituationpthatpoccurspbecauseppeoplepwithpthepgreatestpprobablypofplosspareptheponesplike
lyptoppurchasepinsurancepispknownpasp-pCORRECTppANSWER-Adversepselection.
ABCpInsurancepCompanypsellsppropertypinsurance.pThepcompanypispreunderwritingpitspbo
okpofpbusinesspatpmidyear.pThepcompanyphopedptopretainp80ppercentpofppolicyowners.pThep
retentionpratepisp82ppercentpandptheplosspratioponpthepretainedpbusinesspisp62ppercent.pThep
companyphadphopedptopwritep$2.5pmillionpinppremiumspforpthepyear,pandpthepmidyearpvaluep
wasp$1.3pmillionpinppremiumspwritten.pThepnewppolicypgoalpforpthepyearpwasp6,000pandp3,5
00pnewppoliciesphadpbeenpwrittenpatpmidyear.pTheplosspratiopgoalpforpthepyearpwasp65pperce
nt,pandptheplosspratiopatpmidyearpwasp68ppercent.pAssumingppremiumpwritingspandplossespa
repdistributedpuniformlypoverpthepyear,pwhatpshouldpABCpInsurancepCompanypconcludepab
outpitspperformancepatpmidyear?p-pCORRECTppANSWER-
Newpbusinesspispcontributingpnegativelyptoptheplosspratio.
ABCpInsurancepCompany'spactuaryphaspcalculatedptheppureppremiumpforpthepcompany'sph
omeowner'spinsuranceplinepasp$40.pFixedpexpensespforptheplineparep$2.50pperpexposurepun
itpandpvariablepexpensesparep12ppercent.pThepcompany'sploadingpforpprofitspandpcontingen
ciespisp5ppercent.pUsingptheppureppremiumpratemakingpmethodpandproundingptopthepneares
tpwholepdollar,pwhichponepofpthepfollowingpispthepratepperpexposurepunitpthatpABCpneedsptopc
harge?p-pCORRECTppANSWER-$51.
ABCpInsurancepCompany'spratiopofppremiumsptopsurpluspisp2ptop1.pIfpthepstateprequirementp
wherepABCptransactspbusinesspisp3ptop1,pthenpABCp-pCORRECTppANSWER-
Ispmeetingpthepstate'spsurplusprequirement.
ABCpinsurancepispconsideringpenteringpnewpstatespasppartpofpitspgrowthpplan.pThepexecutiv
espofpABCpdecidepnotptoppursuepnewpbusinesspinplow-
incomepareaspofpstatespandpprovidepunderwriterspwithpmapspindicatingpthepareaspfrompwhi
chptheyparepnotptopacceptpapplications.pThisppositionplikelypviolatespregulationspthatp-
pCORRECTppANSWER-
Constrainpinsurerspabilityptopaccept,pmodify,porpdeclineplosspexposures.
ABCpRetailpshowspthepfollowingpamountspinpitspendpofpyearpfinancialpstatements:
Accountspreceivablep=p$500,000
Inventoryp=p$5,000,000
Creditpsalesp=p$10,000,000
Costpofpgoodspsoldp=p$20,000,000
Basedponpthesepfigures,pitspaccountspreceivablepturnoverpratiopisp-pCORRECTppANSWER-
20ptimes.
AcceptspfrompthepconsolidatedpsheetpforpAJDpRetail,pInc.p(AJD)parepshownpbelow.pInpitspco
nsolidatedpincomepstatementpforpthepsamepperiod,pshownpinpthousands,pAJDpreportsptotalp
salespofp$23,000,pconsistingpofpcashpsalespofp$18,000pandpcreditpsalespofp$5,000.pCostpofp
goodspsoldpispshownpatp$16,000.pUsingpthispinformation,pwhichpofpthepfollowingpispthepinven
torypturnoverpratiopforpAJD?
,Inventoryp=p5,000p-pCORRECTppANSWER-3.2.
AcepWoodworkingpCompanypmakesphouseholdpfurniture.pWhichponepofpthepfollowingpbestp
describespanpexpensepthatpshouldpbepclassifiedpaspanpoperatingpexpenseponpAce'spincome
pstatement?p-pCORRECTppANSWER-Utilitypchargespforpthepmanufacturingpplant.
Actuariespandpunderwriterspbothphaveprolespinppricingpinsurancepproducts.pWhichponepofpth
epfollowingpispactuaries'pprimaryppricingprole?p-pCORRECTppANSWER-Ratemaking.
Alanpispapcommercialpinsurancepunderwriter.pHepispreviewingpthepapplicationpforpBp&pLpRest
aurant.pBp&pLpispopenpfromp6pAMptop2pPMpdailypandpofferspbothpseatedpdiningpandptake-
outpservicepforpbreakfastpandplunch.pTheprestaurantphadpapgoodpreputationpandpfinancialpre
portspwerepstrong,pbutpAlanpwaspconcernedpwhenpheplearnedpthatpthepriskpwasppartpofpapfra
nchisepagreement.pThepfranchiseparrangementpraisespapconcernpaboutpwhichponepofpthepfo
llowingpleadershippcharacteristics?p-pCORRECTppANSWER-Operationalpauthority.
Alexphaspbeenpapcommercialpunderwriterpforp2pyears.pHephaspreceivedpapmulti-
linespsubmissionpforpapcompanypinpanpindustrypthatphepispnotpverypfamiliarpwith.pWhichponep
ofpthepfollowingpexternalpresourcespwouldpgivepAlexpapgeneralpdescriptionpofpthepindustriesp
operationspandptheplevelpofphazardpbyplinepofpinsurance.p-pCORRECTppANSWER-
Best'spUnderwritingpGuide.
Allpofpthepfollowingparepcharacteristicspofpindependentpcontractors,pEXCEPT:p-
pCORRECTppANSWER-
Whenpanpindependentpcontractor'spworkpispunsatisfactory,pthepusualprecoursepisptopdischar
gepthepcontractor.
Allpofpthepfollowingparepcommonpprofitabilitypmeasurespusedpinpratiopanalysis,pEXCEPT:p-
pCORRECTppANSWER-Turnoverpofpassets.
Allpofpthepfollowingparepguidelinespforpeffectivepcommunication,pEXCEPT:p-
pCORRECTppANSWER-Avoidpsettingptimelinespandpdeadlines.
Allpofpthepfollowingparepobjectivespofpratepregulation,pEXCEPT:p-pCORRECTppANSWER-
Ratesppromotepavailabilitypandpaffordabilitypofpinsurance.
Allpofpthepfollowingparepreasonspthatpanpunderwriterpmightpwantptopobtainpinformationpinpadd
itionptopthepapplication,pEXCEPT:p-pCORRECTppANSWER-Toppostponepapdecision.
Allpofpthepfollowingparepunderwritingpactivitiesptypicallypperformedpbypcorporatepunderwriter
s,pEXCEPT:p-pCORRECTppANSWER-Supportpproducerspandpinsureds.
Allpofpthepfollowingpcouldpbepconsideredpthreatsptopanporganization'spoperationspandpsuppl
ypchain,pEXCEPT:p-pCORRECTppANSWER-Apcustomerpfallingpinsidepthepbuilding.
, AlphapInsurancepCompanyp(AIC)phaspincurredpautomobilepinsuranceplossespofp$6pmillionpa
ndpearnedpexposurepunitspofp120,000pcar-
years.pThepcompany'spexpensesptotalp$840,000.pAIC'spmanagementpwantsptopincludepapfa
ctorpforpprofitspandpcontingenciespofpfiveppercent.pUsingptheppureppremiumpratemakingpmet
hodpandproundingptopthepnearestpwholepdollar,pwhichponepofpthepfollowingprepresentspthepra
tepperpexposurepunitpthatpAICpneedsptopchargepforpautomobilepinsurance?p-
pCORRECTppANSWER-$60.
AmeliapispapcommercialppropertypunderwriterpinpBoston.pShepispworkingponpaplargepnewpbu
sinesspsubmissionpwithptwoplocationspinpCalifornia.pShepdecidedptopconsultpanpexternalpexp
ertpdueptopherpconcernspaboutpwildfirepexposure.pAmeliapcanpusepthepknowledgepgainedpfr
ompthepexternalpwildfirepexpertptopdopallpofpthepfollowing,pEXCEPT:p-
pCORRECTppANSWER-Becomepanpinternalpwildfirepexpertpatpherporganization.
Anpanalystpispcomparingpthepfinancialpdatapofptwopcompaniespthatpcompetepinpthepsamepind
ustry,pCompanypApandpCompanypB.pEachpofptheptwopcompaniesphaspthepsamepreturnponpa
ssetspratiop(ROA),pandpthepanalystpwantsptopunderstandphowpeachpispusingpitspresourcespto
pachievepthispresult.pFurtherpanalysisprevealspthatpCompanypAphaspaplowerpassetpturnoverpr
atiopthanpCompanypB.pThispanalysispindicatespthatp-pCORRECTppANSWER-
CompanypBpispgeneratingpaphigherplevelpofpsalespinpproportionptopitspassetspthanpCompanyp
A.
Anpinsurancepcompanypdecidedptopreunderwritepitspbookpofphomeownerspinsuranceppolicie
s.pThepfirstpsteppinpthepreunderwritingpprocesspisptop-pCORRECTppANSWER-
Analyzepthepbookpofpbusiness.
Anpinsurancepcompanypmustphavepadequateppolicyholderspsurpluspifpitpwishesptop-
pCORRECTppANSWER-Increasepitspwrittenppremiumpvolume.
Anpinsurancepcompanypmustphavepadequateppolicyholders'psurpluspifpitpwishesptop-
pCORRECTppANSWER-Increasepitspwrittenppremiumpvolume.
Anpinsurancepcompanypneedsptophirepanpemployeepwithpknowledgepofpinsuranceppolicypfor
mspandpthepabilityptoprelateppolicypprovisionsptoptheplosspexposurespofpindividualppolicyhold
ers.pTheppersonpwillpalsopprepareppremiumpquotespandpprocesspcancellations.pWhichponep
ofpthepfollowingpemployeespwouldpbestpsuitpthepcompany'spneeds?p-
pCORRECTppANSWER-Fieldpunderwriter.
Anpinsurerpreceivedp2pautomobilepinsurancepapplications.pThepfirstpapplicantpispagep35,pma
le,pandphaspapcleanpdrivingprecord.pThepsecondpapplicationpispagep35,pfemale,phasphadpthre
epspeedingpviolationspandpappriorpaccident.pThepinsurerpacceptspbothprisks,pbutpchargespth
epsecondpapplicantpaphigherppremium.pWhichponepofpthepfollowingpstatementspaboutpthisps
cenariopispcorrect?p-pCORRECTppANSWER-
Regulationspallowpthepinsurerptopchargepmorepforpinsuredspwithppoorpdrivingpexperience.
