AU 60 Practice Test Attempt #1 with complete
solutions
The overarching purpose of underwriting is: - Answer-To develop and maintain a
profitable book of business.
/.An underwriter receives a renewal application for a property quote from his producer.
The applicant has had a series of small losses in the recent past. The underwriter is
debating whether to reject the submission or quote it with a property deductible of
$5,000. During which one of the following steps in the underwriting process is the
underwriter involved? - Answer-Developing underwriting alternatives.
/.An insurance company needs to hire an employee with knowledge of insurance policy
forms and the ability to relate policy provisions to the loss exposures of individual
policyholders. The person will also prepare premium quotes and process cancellations.
Which one of the following employees would best suit the company's needs? - Answer-
Line underwriter.
/.Which one of the following is a financial measure of underwriting performance? -
Answer-Combined ratio.
/.Underwriting regulations seek to ensure correct classification of insureds because: -
Answer-Misclassification can result in inadequate premiums and drain an insurer's
surplus.
/.Specialty insurers such as those offering surety bonds, aviation insurance, and
livestock mortality insurance usually: - Answer-Centralize underwriting authority.
/.Which one of the following financial ratios is key for evaluating insurer solvency? -
Answer-Premium to surplus ratio.
/.Which one of the following cases illustrates how underwriting guidelines ensure
uniformity and consistency? - Answer-Chloe and Elin are underwriting identical
homeowners risks for Cromley Insurance Company. The applicants have the same
protection class, construction, and coverage amount. After checking the underwriting
guidelines, they come to the same underwriting decision.
/.The USA Patriot Act restricts United States firms, including those in the insurance
industry, from: - Answer-Engaging in business with persons and organizations on the
Specifically Designated Nationals (SDN) list.
/.During a general market conduct examination of underwriting, examiners would look
for evidence of all of the following, EXCEPT: - Answer-Inconsistent claim practices.
, /.Which one of the following statements is correct with regard to regulation and insurers'
operations? - Answer-Underwriting regulation indirectly influences ratemaking and claim
settlement.
/.Information efficiency refers to: - Answer-How the value of the information to
underwriting decisions must be weighed relative to its expense and its timeliness.
/.If an account is experienced rated, for which of the following reasons might an
underwriter have to contact the prior carrier? - Answer-To confirm or update the loss
history provided by the insured.
/.Most insurers have some system for keeping previous applications for which they
declined to write insurance. These files can be valuable in evaluating new business
because they: - Answer-Document earlier decisions and can greatly reduce the amount
of work the new application requires.
/.Lucas is a commercial underwriter reviewing an automobile insurance application for
Jancy Marketing (Jancy). Jancy provides its sales representatives with vehicles to use
for business purposes only. The producer states that Jancy has a strong vehicle
maintenance program and strict driver selection criteria. Lucas does not have the time
or resources to order a risk control report. Which one of the following sources of
underwriting information should Lucas use to confirm that Jancy's driver selection
program is in place? - Answer-Motor vehicle reports.
/.Which one of the following Dun & Bradstreet report scores shows how promptly the
company pays its bills relative to terms? - Answer-Paydex.
/.All of the following are advantages of the sole proprietorship type of business
ownership, EXCEPT: - Answer-Limited liability.
/.Sean is a general partner in a small employment business. The general public is
unaware of Sean's interest as a partner. Sean is a: - Answer-Secret partner.
/.The potential for hidden underwriting risks of associated insureds is greatest with
which one of the following forms of ownership? - Answer-Corporation.
/.Which one of the following statements is correct regarding wrap-ups? - Answer-
Activities covered by the wrap-up program should be excluded from the participating
contractors' primary insurance policies.
/.Insurance payments in excess of the amount of the loss are unlikely under property
policies because: - Answer-Property policies permit recovery only to the extent of each
party's insurable interest.
solutions
The overarching purpose of underwriting is: - Answer-To develop and maintain a
profitable book of business.
/.An underwriter receives a renewal application for a property quote from his producer.
The applicant has had a series of small losses in the recent past. The underwriter is
debating whether to reject the submission or quote it with a property deductible of
$5,000. During which one of the following steps in the underwriting process is the
underwriter involved? - Answer-Developing underwriting alternatives.
/.An insurance company needs to hire an employee with knowledge of insurance policy
forms and the ability to relate policy provisions to the loss exposures of individual
policyholders. The person will also prepare premium quotes and process cancellations.
Which one of the following employees would best suit the company's needs? - Answer-
Line underwriter.
/.Which one of the following is a financial measure of underwriting performance? -
Answer-Combined ratio.
/.Underwriting regulations seek to ensure correct classification of insureds because: -
Answer-Misclassification can result in inadequate premiums and drain an insurer's
surplus.
/.Specialty insurers such as those offering surety bonds, aviation insurance, and
livestock mortality insurance usually: - Answer-Centralize underwriting authority.
/.Which one of the following financial ratios is key for evaluating insurer solvency? -
Answer-Premium to surplus ratio.
/.Which one of the following cases illustrates how underwriting guidelines ensure
uniformity and consistency? - Answer-Chloe and Elin are underwriting identical
homeowners risks for Cromley Insurance Company. The applicants have the same
protection class, construction, and coverage amount. After checking the underwriting
guidelines, they come to the same underwriting decision.
/.The USA Patriot Act restricts United States firms, including those in the insurance
industry, from: - Answer-Engaging in business with persons and organizations on the
Specifically Designated Nationals (SDN) list.
/.During a general market conduct examination of underwriting, examiners would look
for evidence of all of the following, EXCEPT: - Answer-Inconsistent claim practices.
, /.Which one of the following statements is correct with regard to regulation and insurers'
operations? - Answer-Underwriting regulation indirectly influences ratemaking and claim
settlement.
/.Information efficiency refers to: - Answer-How the value of the information to
underwriting decisions must be weighed relative to its expense and its timeliness.
/.If an account is experienced rated, for which of the following reasons might an
underwriter have to contact the prior carrier? - Answer-To confirm or update the loss
history provided by the insured.
/.Most insurers have some system for keeping previous applications for which they
declined to write insurance. These files can be valuable in evaluating new business
because they: - Answer-Document earlier decisions and can greatly reduce the amount
of work the new application requires.
/.Lucas is a commercial underwriter reviewing an automobile insurance application for
Jancy Marketing (Jancy). Jancy provides its sales representatives with vehicles to use
for business purposes only. The producer states that Jancy has a strong vehicle
maintenance program and strict driver selection criteria. Lucas does not have the time
or resources to order a risk control report. Which one of the following sources of
underwriting information should Lucas use to confirm that Jancy's driver selection
program is in place? - Answer-Motor vehicle reports.
/.Which one of the following Dun & Bradstreet report scores shows how promptly the
company pays its bills relative to terms? - Answer-Paydex.
/.All of the following are advantages of the sole proprietorship type of business
ownership, EXCEPT: - Answer-Limited liability.
/.Sean is a general partner in a small employment business. The general public is
unaware of Sean's interest as a partner. Sean is a: - Answer-Secret partner.
/.The potential for hidden underwriting risks of associated insureds is greatest with
which one of the following forms of ownership? - Answer-Corporation.
/.Which one of the following statements is correct regarding wrap-ups? - Answer-
Activities covered by the wrap-up program should be excluded from the participating
contractors' primary insurance policies.
/.Insurance payments in excess of the amount of the loss are unlikely under property
policies because: - Answer-Property policies permit recovery only to the extent of each
party's insurable interest.
