AU 60 Practice Test Attempt #2
Questions With Marking Scheme
An insurance company must have adequate policyholders' surplus if it wishes to: -
Answer-Increase its written premium volume.
/.Which one of the following is a condition that increases the likelihood that a person will
intentionally cause or exaggerate a loss? - Answer-Moral hazard.
/.The focus of a line underwriter is: - Answer-Evaluating new submissions and renewal
underwriting.
/.Which one of the following ratios is considered the accepted financial measure of an
insurer's underwriting performance? - Answer-Combined ratio.
/.Which one of the following best describes what underwriting regulation seeks to
prevent? - Answer-Applying different standards or methods of treatment to insureds
who have the same basic characteristics and loss potential.
/.Tania, an underwriting trainee for Keithly Insurance Company, has received a new
homeowners application for Nanami. The home is to be insured for $150,000. It is a
frame house with a swimming pool and trampoline in the back yard. The grass needs
mowing and the shrubbery needs trimming. Nanami has a marginal credit score. What
is Tania's first step in underwriting the policy for Nanami? - Answer-Check to see if she
has the underwriting authority to make the decision.
/.An insurer decides to discontinue writing a class of workers compensation insureds
because losses on the business have exceeded expectations. Instead, in an effort to
maximize its return on equity, the insurer plans to use its resources to increase the
volume of accounts in an area that offers more promising returns. This need to redirect
the focus for desired business is an example of an underwriting constraint due to: -
Answer-Financial capacity.
/.Which one of the following statements is correct with regard to underwriting
guidelines? - Answer-Compliance with underwriting guidelines ensures selection of loss
exposures commensurate with planned rate levels.
/.Which one of the following statements is correct with respect to policy form laws? -
Answer-Deemer provisions are intended to encourage a prompt review of submitted
policy forms.
, /.Which one of the following statements is correct with respect to market conduct
examinations? - Answer-The Department of Insurance (DOI) may suspend or revoke
the insurer's certificate of authority if it finds that an insurer has violated a law.
/.LMN Insurance Company has recently opened three new regional offices and has
been growing rapidly. Because of the rapid growth in written premiums, LMN's
premium-to-surplus ratio has risen to three to one. Which one of the following is the
most viable option for LMN to improve its premium-to surplus ratio for regulatory
purposes? - Answer-Arrange for reinsurance to free up surplus.
/.Rene Worthington is a commercial underwriter whose expertise is in underwriting retail
exposures. Rene has been asked to underwrite an account for a business in the
cosmetic industry with which she has little experience. Where may Rene find general
information about the cosmetic industry? - Answer-Best's Underwriting Guide.
/.For obtaining information regarding an account, upon which one of the following do
underwriters most rely? - Answer-The producer.
/.Which one of the following is the primary benefit of using the services of an
independent contractor who specializes in risk control work to inspect properties, rather
than the insurer's risk control representative? - Answer-Quicker response.
/.Tania, a commercial property underwriter, has received a new business application for
Pravalt Properties (Pravalt). The producer is expecting a quick decision. Three of the
properties owned by Pravalt have high values and are located in relatively rural areas.
Tania has no specific concerns with the properties, but the underwriting guidelines
require that she obtain risk control reports. Which one of the following would be the
most timely and cost effective source of the reports? - Answer-Fee for service company.
/.Commercial property and inland marine underwriters are most likely to use which one
of the following external sources of information? - Answer-Valuation guides.
/.All of the following are disadvantages of the partnership type of business ownership,
EXCEPT: - Answer-Partners are taxed personally for partnership profits.
/.The most common forms of business ownership include sole proprietorships and: -
Answer-Partnerships.
/.Which one of the following is a benefit to listing both the name of the business and the
name of the owner on the policy when insuring a sole proprietorship? - Answer-Makes it
clear which business the insurer is providing coverage for, if the individual owns more
than one business.
/.In which of the following ways do wrap-ups benefit the participating parties? - Answer-
Wrap-ups enable the project sponsor to negotiate a volume discount on the
consolidated insurance costs of the construction project.
Questions With Marking Scheme
An insurance company must have adequate policyholders' surplus if it wishes to: -
Answer-Increase its written premium volume.
/.Which one of the following is a condition that increases the likelihood that a person will
intentionally cause or exaggerate a loss? - Answer-Moral hazard.
/.The focus of a line underwriter is: - Answer-Evaluating new submissions and renewal
underwriting.
/.Which one of the following ratios is considered the accepted financial measure of an
insurer's underwriting performance? - Answer-Combined ratio.
/.Which one of the following best describes what underwriting regulation seeks to
prevent? - Answer-Applying different standards or methods of treatment to insureds
who have the same basic characteristics and loss potential.
/.Tania, an underwriting trainee for Keithly Insurance Company, has received a new
homeowners application for Nanami. The home is to be insured for $150,000. It is a
frame house with a swimming pool and trampoline in the back yard. The grass needs
mowing and the shrubbery needs trimming. Nanami has a marginal credit score. What
is Tania's first step in underwriting the policy for Nanami? - Answer-Check to see if she
has the underwriting authority to make the decision.
/.An insurer decides to discontinue writing a class of workers compensation insureds
because losses on the business have exceeded expectations. Instead, in an effort to
maximize its return on equity, the insurer plans to use its resources to increase the
volume of accounts in an area that offers more promising returns. This need to redirect
the focus for desired business is an example of an underwriting constraint due to: -
Answer-Financial capacity.
/.Which one of the following statements is correct with regard to underwriting
guidelines? - Answer-Compliance with underwriting guidelines ensures selection of loss
exposures commensurate with planned rate levels.
/.Which one of the following statements is correct with respect to policy form laws? -
Answer-Deemer provisions are intended to encourage a prompt review of submitted
policy forms.
, /.Which one of the following statements is correct with respect to market conduct
examinations? - Answer-The Department of Insurance (DOI) may suspend or revoke
the insurer's certificate of authority if it finds that an insurer has violated a law.
/.LMN Insurance Company has recently opened three new regional offices and has
been growing rapidly. Because of the rapid growth in written premiums, LMN's
premium-to-surplus ratio has risen to three to one. Which one of the following is the
most viable option for LMN to improve its premium-to surplus ratio for regulatory
purposes? - Answer-Arrange for reinsurance to free up surplus.
/.Rene Worthington is a commercial underwriter whose expertise is in underwriting retail
exposures. Rene has been asked to underwrite an account for a business in the
cosmetic industry with which she has little experience. Where may Rene find general
information about the cosmetic industry? - Answer-Best's Underwriting Guide.
/.For obtaining information regarding an account, upon which one of the following do
underwriters most rely? - Answer-The producer.
/.Which one of the following is the primary benefit of using the services of an
independent contractor who specializes in risk control work to inspect properties, rather
than the insurer's risk control representative? - Answer-Quicker response.
/.Tania, a commercial property underwriter, has received a new business application for
Pravalt Properties (Pravalt). The producer is expecting a quick decision. Three of the
properties owned by Pravalt have high values and are located in relatively rural areas.
Tania has no specific concerns with the properties, but the underwriting guidelines
require that she obtain risk control reports. Which one of the following would be the
most timely and cost effective source of the reports? - Answer-Fee for service company.
/.Commercial property and inland marine underwriters are most likely to use which one
of the following external sources of information? - Answer-Valuation guides.
/.All of the following are disadvantages of the partnership type of business ownership,
EXCEPT: - Answer-Partners are taxed personally for partnership profits.
/.The most common forms of business ownership include sole proprietorships and: -
Answer-Partnerships.
/.Which one of the following is a benefit to listing both the name of the business and the
name of the owner on the policy when insuring a sole proprietorship? - Answer-Makes it
clear which business the insurer is providing coverage for, if the individual owns more
than one business.
/.In which of the following ways do wrap-ups benefit the participating parties? - Answer-
Wrap-ups enable the project sponsor to negotiate a volume discount on the
consolidated insurance costs of the construction project.
