AU 60 Practice Questions With All
Correct Answers
Corporate underwriters share research of the market responsibilities with actuarial and
marketing departments. Research includes an ongoing evaluation of which one of the
following? - Answer-Optimal product mix in the book of business
/.As a commercial lines underwriter, William would spend many hours reviewing and
summarizing the loss runs that were part of a new business application. He can now
rely on a computer to digitalize and summarize those loss runs. This is an example of
how underwriting has been transformed by which one of the following advancements in
technology? - Answer-Machine learning
/.Adam is an analyst conducting a market conduct examination at DEF Insurance in
response to a consumer complaint. During the course of his review, he discovers that
DEF has failed to apply newly implemented underwriting and rating factors to renewals,
failed to use mutually exclusive underwriting guidelines for the company's different
programs, failed to use correct forms and rates, and failed to apply underwriting
guidelines consistently by occasionally allowing producers exceptions. Which one of
these practices will Adam most likely allow the insurer to continue? - Answer-Allowing
producers exceptions in some cases
/.Which one of the following is the most common use of predictive modeling in the
underwriting of small commercial accounts? - Answer-Rating
/.An insurance company must have adequate policyholders' surplus if it wishes to -
Answer-Increase its written premium volume.
/.While developing goals for its book of business, an insurer's corporate underwriter
decides to increase its market share of workers compensation insurance in the
construction industry. This type of underwriting activity is known as - Answer-
Formulating underwriting policy.
/.Which one of the following insurer employees would be best qualified to answer an
underwriter's technical questions about an applicant's operations? - Answer-Risk control
representative
/.Which one of the following insurer representatives is most likely to meet with the
insured, see their operations, and review their financial operations on an annual basis? -
Answer-Premium auditor
,/.Which one of the following external sources of underwriting information is more likely
to be used by an underwriter in the pricing phase, than in risk-selection decisions? -
Answer-Insurance advisory organizations
/.Underwriters should occasionally order a credit report after the account has been
accepted and a policy issued. A credit report may be used to indicate the existence of
each of the following conditions, EXCEPT: - Answer-An account's propensity to report
claims
/.Which one of the following Dun & Bradstreet report scores shows how promptly the
company pays its bills relative to terms? - Answer-Paydex
/.Which one of the following statements regarding motor vehicle reports (MVRs) is true?
- Answer-They are particularly useful in predicting an account's future losses.
/.Which one of the following types of government records do underwriters use as a
source to predict future losses? - Answer-Motor vehicle reports
/.Which one of the following is a major purpose of the statement of cash flows? -
Answer-It is used to assess the ability to meet financial obligations & It is used to
assess an organization's need for additional financing.
/.Which one of the following statements is true regarding additional insureds? - Answer-
Additional insured endorsements restrict coverage to those claims arising out of the
named insureds operations.
/.A building owner has hired a roofing contractor to replace the roof of a building located
on a busy urban street. The building owner wants to be protected for any claims
resulting from the roofing contractor's work on his property. Which one of the following
methods would be most beneficial to the building owner? - Answer-A separate owners
and contractors protective liability policy in the name of the building owner
/.An underwriter seeking to gain insight into the activities that might be conducted by an
applicant would use which one of the following resources? - Answer-North American
Industry Classification System
/.Which one of the following types of rating plans is used most commonly for workers
compensation insurance? - Answer-Participating plan
/.Which one the following statements is true regarding schedule rating and individual
risk premium modification plans? - Answer-Generally, those insureds that are eligible to
use experience rating are also eligible to use schedule rating.
/.All of the following are objectives of rate regulation, EXCEPT: - Answer-Rates promote
availability and affordability of insurance.
,/.Mega Steel Inc. is looking to purchase workers compensation coverage for its 10,000
employees. Despite having an inconsistent loss history, Mega Steel has recently
implemented some risk control measures that it believes will lead to fewer losses in the
upcoming policy period. Which one of the following individual rating plans would be best
for Mega Steel? - Answer-Retrospective rating plan
/.A rating plan that adjusts the insured premium for savings in insurance company
commissions is called - Answer-Expense modification.
/.ABC Insurance Company sells property insurance. The company is reunderwriting its
book of business at midyear. The company hoped to retain 80 percent of policyowners.
The retention rate is 82 percent and the loss ratio on the retained business is 62
percent. The company had hoped to write $2.5 million in premiums for the year, and the
midyear value was $1.3 million in premiums written. The new policy goal for the year
was 6,000 and 3,500 new policies had been written at midyear. The loss ratio goal for
the year was 65 percent, and the loss ratio at midyear was 68 percent. Assuming
premium writings and losses are distributed uniformly over the year, what should ABC
Insurance Company conclude about its performance at midyear? - Answer-New
business is contributing negatively to the loss ratio. As the overall loss ratio is 68
percent and the loss ratio on retained business is 62 percent, the new business must be
contributing negatively to the loss ratio.
/.Green Pastures Insurance Company insures farms and small businesses. The
company also has some business auto policies that account for less than ten percent of
written premiums. Green Pastures sold its auto insurance business to BusCar
Insurance. BusCar Insurance immediately decided to reunderwrite these policies to
determine the risk characteristics compared to the risk profile it expected. This
reunderwriting is a(n) - Answer-Special event review.
/.Which one of the following statements regarding monthly report variations and
quarterly reports used in reunderwriting is true? - Answer-By the end of the third
quarter, it may be too late to improve that year's operating results.
/.During an economic recession, AMM Insurance Company decided to review the claims
under its businessowners policies for three territories. Some findings about these claims
were: Sales off by more than 50 percent when loss occurred—84 percent; Loss caused
by natural peril (e.g. fire)—32 percent; Loss caused by human peril (e.g. theft)—68
percent; Loss could have been prevented by insured—42 percent, and Loss referred to
AMM's special investigative unit—33 percent. Based on these findings, which one of the
following appears to be the greatest problem with AMM's businessowners policies in
these territories? - Answer-Moral hazard
/.While specialized analytics and data-driven tools enhance the underwriter's risk
selection process, which one of the following underwriting skills is required to evaluate
the effect of a risk's poor attitude regarding safety and risk management? - Answer-
Judgement
, /.Josh received an all lines submission for a manufacturing risk that seemed to have
severe exposure for multiple lines. He had limited knowledge of the industry, so he
decided to consult with an external expert. After gaining additional knowledge from the
subject-matter expert, Josh decided to decline the submission for all lines. This is an
example of an underwriter using an external stakeholder to help do which one of the
following? - Answer-Determine the appropriate treatment technique
/.Molly is an underwriter for Stanton Insurance. She is working on an all-lines renewal
with the producer, Dan. While gathering information for the renewal, Molly notices that
the renewal payrolls and sales are almost 20 percent higher than the expiring policy.
Dan confirms that the company is experiencing some significant growth, but has not
expanded into any new products or territories. He also tells Molly that the company will
be marketing its insurance business this renewal, so her pricing should be as
aggressive as possible.
Molly states that this is an important account to Stanton Insurance and arranges a
meeting with Dan and the loss control representative on the account. She discusses
some deductible and rating plan options that could help offset some of the premium
growth and asks for Dan's feedback. They also discuss how the loss control
representative could work with the insured during this period of growth. - Answer-
Opening stage
/.Which one of the following skills/tools helps an underwriter add value to service
provided to customers and insurers? - Answer-Innovation
/.To effectively price insurance accounts, underwriters must be familiar with rate
manuals. Which one of the following is true regarding rate manuals? - Answer-Rate
manuals provide information concerning the use of endorsements that amend the
policy.
/.Ike, as an underwriter for IIA Insurance Company, knew his rates needed to include
loss expenses, as well as profits and contingencies. Ike also had to pay premium taxes,
general expenses and licenses and fees paid to government, regulatory, and advisory
organizations. These expenses are generally included in ratemaking as - Answer-The
expense provision.
/.Due to poor loss experience in its product liability line of insurance, an insurer wants to
adjust its current insurance rates. The insurer's actual loss ratio is 45 percent and the
expected loss ratio is 40 percent. Using the loss ratio ratemaking method, which one of
the following represents the indicated rate change? - Answer-12.5% increase (the
indicated rate change is calculated by taking the actual loss ratio minus the expected
loss ratio, and dividing the difference by the expected loss ratio. (45% - 40%) / 40% =
12.5%)
/.Worthley Insurance Company's insurance rates are based on an expected loss ratio of
75 percent. Over the past three years, the actual loss ratio has been 70 percent.
Correct Answers
Corporate underwriters share research of the market responsibilities with actuarial and
marketing departments. Research includes an ongoing evaluation of which one of the
following? - Answer-Optimal product mix in the book of business
/.As a commercial lines underwriter, William would spend many hours reviewing and
summarizing the loss runs that were part of a new business application. He can now
rely on a computer to digitalize and summarize those loss runs. This is an example of
how underwriting has been transformed by which one of the following advancements in
technology? - Answer-Machine learning
/.Adam is an analyst conducting a market conduct examination at DEF Insurance in
response to a consumer complaint. During the course of his review, he discovers that
DEF has failed to apply newly implemented underwriting and rating factors to renewals,
failed to use mutually exclusive underwriting guidelines for the company's different
programs, failed to use correct forms and rates, and failed to apply underwriting
guidelines consistently by occasionally allowing producers exceptions. Which one of
these practices will Adam most likely allow the insurer to continue? - Answer-Allowing
producers exceptions in some cases
/.Which one of the following is the most common use of predictive modeling in the
underwriting of small commercial accounts? - Answer-Rating
/.An insurance company must have adequate policyholders' surplus if it wishes to -
Answer-Increase its written premium volume.
/.While developing goals for its book of business, an insurer's corporate underwriter
decides to increase its market share of workers compensation insurance in the
construction industry. This type of underwriting activity is known as - Answer-
Formulating underwriting policy.
/.Which one of the following insurer employees would be best qualified to answer an
underwriter's technical questions about an applicant's operations? - Answer-Risk control
representative
/.Which one of the following insurer representatives is most likely to meet with the
insured, see their operations, and review their financial operations on an annual basis? -
Answer-Premium auditor
,/.Which one of the following external sources of underwriting information is more likely
to be used by an underwriter in the pricing phase, than in risk-selection decisions? -
Answer-Insurance advisory organizations
/.Underwriters should occasionally order a credit report after the account has been
accepted and a policy issued. A credit report may be used to indicate the existence of
each of the following conditions, EXCEPT: - Answer-An account's propensity to report
claims
/.Which one of the following Dun & Bradstreet report scores shows how promptly the
company pays its bills relative to terms? - Answer-Paydex
/.Which one of the following statements regarding motor vehicle reports (MVRs) is true?
- Answer-They are particularly useful in predicting an account's future losses.
/.Which one of the following types of government records do underwriters use as a
source to predict future losses? - Answer-Motor vehicle reports
/.Which one of the following is a major purpose of the statement of cash flows? -
Answer-It is used to assess the ability to meet financial obligations & It is used to
assess an organization's need for additional financing.
/.Which one of the following statements is true regarding additional insureds? - Answer-
Additional insured endorsements restrict coverage to those claims arising out of the
named insureds operations.
/.A building owner has hired a roofing contractor to replace the roof of a building located
on a busy urban street. The building owner wants to be protected for any claims
resulting from the roofing contractor's work on his property. Which one of the following
methods would be most beneficial to the building owner? - Answer-A separate owners
and contractors protective liability policy in the name of the building owner
/.An underwriter seeking to gain insight into the activities that might be conducted by an
applicant would use which one of the following resources? - Answer-North American
Industry Classification System
/.Which one of the following types of rating plans is used most commonly for workers
compensation insurance? - Answer-Participating plan
/.Which one the following statements is true regarding schedule rating and individual
risk premium modification plans? - Answer-Generally, those insureds that are eligible to
use experience rating are also eligible to use schedule rating.
/.All of the following are objectives of rate regulation, EXCEPT: - Answer-Rates promote
availability and affordability of insurance.
,/.Mega Steel Inc. is looking to purchase workers compensation coverage for its 10,000
employees. Despite having an inconsistent loss history, Mega Steel has recently
implemented some risk control measures that it believes will lead to fewer losses in the
upcoming policy period. Which one of the following individual rating plans would be best
for Mega Steel? - Answer-Retrospective rating plan
/.A rating plan that adjusts the insured premium for savings in insurance company
commissions is called - Answer-Expense modification.
/.ABC Insurance Company sells property insurance. The company is reunderwriting its
book of business at midyear. The company hoped to retain 80 percent of policyowners.
The retention rate is 82 percent and the loss ratio on the retained business is 62
percent. The company had hoped to write $2.5 million in premiums for the year, and the
midyear value was $1.3 million in premiums written. The new policy goal for the year
was 6,000 and 3,500 new policies had been written at midyear. The loss ratio goal for
the year was 65 percent, and the loss ratio at midyear was 68 percent. Assuming
premium writings and losses are distributed uniformly over the year, what should ABC
Insurance Company conclude about its performance at midyear? - Answer-New
business is contributing negatively to the loss ratio. As the overall loss ratio is 68
percent and the loss ratio on retained business is 62 percent, the new business must be
contributing negatively to the loss ratio.
/.Green Pastures Insurance Company insures farms and small businesses. The
company also has some business auto policies that account for less than ten percent of
written premiums. Green Pastures sold its auto insurance business to BusCar
Insurance. BusCar Insurance immediately decided to reunderwrite these policies to
determine the risk characteristics compared to the risk profile it expected. This
reunderwriting is a(n) - Answer-Special event review.
/.Which one of the following statements regarding monthly report variations and
quarterly reports used in reunderwriting is true? - Answer-By the end of the third
quarter, it may be too late to improve that year's operating results.
/.During an economic recession, AMM Insurance Company decided to review the claims
under its businessowners policies for three territories. Some findings about these claims
were: Sales off by more than 50 percent when loss occurred—84 percent; Loss caused
by natural peril (e.g. fire)—32 percent; Loss caused by human peril (e.g. theft)—68
percent; Loss could have been prevented by insured—42 percent, and Loss referred to
AMM's special investigative unit—33 percent. Based on these findings, which one of the
following appears to be the greatest problem with AMM's businessowners policies in
these territories? - Answer-Moral hazard
/.While specialized analytics and data-driven tools enhance the underwriter's risk
selection process, which one of the following underwriting skills is required to evaluate
the effect of a risk's poor attitude regarding safety and risk management? - Answer-
Judgement
, /.Josh received an all lines submission for a manufacturing risk that seemed to have
severe exposure for multiple lines. He had limited knowledge of the industry, so he
decided to consult with an external expert. After gaining additional knowledge from the
subject-matter expert, Josh decided to decline the submission for all lines. This is an
example of an underwriter using an external stakeholder to help do which one of the
following? - Answer-Determine the appropriate treatment technique
/.Molly is an underwriter for Stanton Insurance. She is working on an all-lines renewal
with the producer, Dan. While gathering information for the renewal, Molly notices that
the renewal payrolls and sales are almost 20 percent higher than the expiring policy.
Dan confirms that the company is experiencing some significant growth, but has not
expanded into any new products or territories. He also tells Molly that the company will
be marketing its insurance business this renewal, so her pricing should be as
aggressive as possible.
Molly states that this is an important account to Stanton Insurance and arranges a
meeting with Dan and the loss control representative on the account. She discusses
some deductible and rating plan options that could help offset some of the premium
growth and asks for Dan's feedback. They also discuss how the loss control
representative could work with the insured during this period of growth. - Answer-
Opening stage
/.Which one of the following skills/tools helps an underwriter add value to service
provided to customers and insurers? - Answer-Innovation
/.To effectively price insurance accounts, underwriters must be familiar with rate
manuals. Which one of the following is true regarding rate manuals? - Answer-Rate
manuals provide information concerning the use of endorsements that amend the
policy.
/.Ike, as an underwriter for IIA Insurance Company, knew his rates needed to include
loss expenses, as well as profits and contingencies. Ike also had to pay premium taxes,
general expenses and licenses and fees paid to government, regulatory, and advisory
organizations. These expenses are generally included in ratemaking as - Answer-The
expense provision.
/.Due to poor loss experience in its product liability line of insurance, an insurer wants to
adjust its current insurance rates. The insurer's actual loss ratio is 45 percent and the
expected loss ratio is 40 percent. Using the loss ratio ratemaking method, which one of
the following represents the indicated rate change? - Answer-12.5% increase (the
indicated rate change is calculated by taking the actual loss ratio minus the expected
loss ratio, and dividing the difference by the expected loss ratio. (45% - 40%) / 40% =
12.5%)
/.Worthley Insurance Company's insurance rates are based on an expected loss ratio of
75 percent. Over the past three years, the actual loss ratio has been 70 percent.
