AU 60 Assignment 1 Fundamentals of
Underwriting Complete Questions with
correct Answers
Book of business - correct answer- ✅A group of policies with a common characteristic, such as
territory or type of coverage, or all policies written by a particular insurer or agency.
Adverse selection - correct answer- ✅In general, the tendency for people with the greatest
probability of loss to be the ones most likely to purchase insurance.
Policyholders' surplus - correct answer- ✅Under statutory accounting principles (SAP), an
insurer's total admitted assets minus its total liabilities.
Capacity - correct answer- ✅The amount of business an insurer is able to write, usually based
on a comparison of the insurer's written premiums to its policyholders' surplus.
Underwriting guidelines (underwriting guide) - correct answer- ✅A written manual that
communicates an insurer's underwriting policy and that specifies the attributes of an account
that an insurer is willing to insure.
Underwriting authority - correct answer- ✅The scope of decisions that an underwriter can make
without receiving approval from someone at a higher level.
Underwriting - correct answer- ✅The overarching purpose of ____ is to develop and maintain a
profitable book of business for the insurer.
Adverse Selection - correct answer- ✅Underwriters minimize the effects of ____ by carefully
selecting the applicants whose loss exposures they are willing to insure, charging appropriate
premiums for the applicants that they do accept with premiums that accurately reflect the loss
exposures, and monitoring applications and books of business for unusual patterns of policy
growth or loss.
Policyholders' Surplus - correct answer- ✅An insurance company must have adequate ____ if
it wishes to increase its written premium volume.
Capacity - correct answer- ✅An insurer's ____ is limited by regulatory guidelines and often by
its own voluntary constraints, which are frequently more conservative than those imposed by
regulators.
Capacity - correct answer- ✅If an insurer's underwriting practices generate policy premiums
that exceed losses and expenses, the policyholders' surplus will increase, thereby increasing
____.
C. To develop and maintain a profitable book of business. - correct answer- ✅The overarching
purpose of underwriting is
A. Achieve the underwriting goals of the company.
B. Make and sustain a profit.
,C. To develop and maintain a profitable book of business.
D. Add to policyholder surplus.
A. Enforcing underwriting guidelines - correct answer- ✅Tania receives an application for
homeowner's insurance for a home valued at $500,000 from Patrick, the producer for Keithly
Insurance Company. Since Tania's underwriting authority is $350,000 on property risks, she
must refer it to Lachlan, her underwriting supervisor. Which one of the following additional
functions for underwriting profitability does this case illustrate?
A. Enforcing underwriting guidelines
B. Prevention of errors and omissions
C. Guarding against adverse selection
D. Ensuring adequate policyholder surplus
B. Insurers must minimize the effects of adverse selection on the book of business. - correct
answer- ✅For underwriting to achieve its purpose,
A. Underwriters must select applicants with legal hazards.
B. Insurers must minimize the effects of adverse selection on the book of business.
C. Underwriters must randomly select applicants to insure.
D. Insurers must follow the steps in the underwriting process in strict sequence.
C. Underwriting authority. - correct answer- ✅Underwriting guidelines reflect the levels of
A. Responsibility by job title.
B. Loss exposure.
C. Underwriting authority.
D. Written premium by type of insurance.
D. Guarding against adverse selection - correct answer- ✅To achieve profitability, the
underwriting function serves which one of the following additional purposes?
A. Transferring the risks of individuals and businesses
B. Enforcing underwriting goals
C. Adding to policyholder surplus
D. Guarding against adverse selection
, C. Underwriting practices must generate policy premiums that exceed losses and expenses. -
correct answer- ✅Victor, the sales manager for Hallbinger's Insurance Company, wants the
company to grow in written premium. He wants his agents to write more auto and homeowners
business. In order to do so, the company must have adequate capacity. Which one of the
following impacts Victor's agents and the company the most concerning surplus and capacity?
A. Sales must submit business with a lower-than-average chance of loss.
B. Claims must pay only covered losses and have low expenses.
C. Underwriting practices must generate policy premiums that exceed losses and expenses.
D. Research and development must create policies which are marketable.
C. Develop and maintain a profitable book of business for the insurer. - correct answer- ✅The
principal purpose of underwriting is to
A. Insure only those applicants with minimal or no loss exposure.
B. Decline to insure those applicants with a risk of incurring a severe loss.
C. Develop and maintain a profitable book of business for the insurer.
D. Educate producers regarding the insurer's underwriting guidelines.
D. Develop and maintain a profitable book of business for the insurer. - correct answer- ✅The
purpose of underwriting is to
A. Maximize the impact of adverse selection on the portfolio.
B. "Pre-qualify" or field underwrite applicants.
C. Compile information to develop a profile of loss exposures.
D. Develop and maintain a profitable book of business for the insurer.
B. Adverse selection. - correct answer- ✅Sofie and the members of her homeowner's
association have homeowner's policies on their coastal dwellings. They have heard that there
are eleven named hurricane storms predicted for their coastal area this year. Sofie and the
homeowner association members plan to increase their homeowner's property coverage limits
to handle their concern about the possible hurricane damage. Their action is known as
A. Prevention of inadequate property limits.
B. Adverse selection.
C. Prevention of errors and omission claims.
D. Property limits assessment.
Underwriting Complete Questions with
correct Answers
Book of business - correct answer- ✅A group of policies with a common characteristic, such as
territory or type of coverage, or all policies written by a particular insurer or agency.
Adverse selection - correct answer- ✅In general, the tendency for people with the greatest
probability of loss to be the ones most likely to purchase insurance.
Policyholders' surplus - correct answer- ✅Under statutory accounting principles (SAP), an
insurer's total admitted assets minus its total liabilities.
Capacity - correct answer- ✅The amount of business an insurer is able to write, usually based
on a comparison of the insurer's written premiums to its policyholders' surplus.
Underwriting guidelines (underwriting guide) - correct answer- ✅A written manual that
communicates an insurer's underwriting policy and that specifies the attributes of an account
that an insurer is willing to insure.
Underwriting authority - correct answer- ✅The scope of decisions that an underwriter can make
without receiving approval from someone at a higher level.
Underwriting - correct answer- ✅The overarching purpose of ____ is to develop and maintain a
profitable book of business for the insurer.
Adverse Selection - correct answer- ✅Underwriters minimize the effects of ____ by carefully
selecting the applicants whose loss exposures they are willing to insure, charging appropriate
premiums for the applicants that they do accept with premiums that accurately reflect the loss
exposures, and monitoring applications and books of business for unusual patterns of policy
growth or loss.
Policyholders' Surplus - correct answer- ✅An insurance company must have adequate ____ if
it wishes to increase its written premium volume.
Capacity - correct answer- ✅An insurer's ____ is limited by regulatory guidelines and often by
its own voluntary constraints, which are frequently more conservative than those imposed by
regulators.
Capacity - correct answer- ✅If an insurer's underwriting practices generate policy premiums
that exceed losses and expenses, the policyholders' surplus will increase, thereby increasing
____.
C. To develop and maintain a profitable book of business. - correct answer- ✅The overarching
purpose of underwriting is
A. Achieve the underwriting goals of the company.
B. Make and sustain a profit.
,C. To develop and maintain a profitable book of business.
D. Add to policyholder surplus.
A. Enforcing underwriting guidelines - correct answer- ✅Tania receives an application for
homeowner's insurance for a home valued at $500,000 from Patrick, the producer for Keithly
Insurance Company. Since Tania's underwriting authority is $350,000 on property risks, she
must refer it to Lachlan, her underwriting supervisor. Which one of the following additional
functions for underwriting profitability does this case illustrate?
A. Enforcing underwriting guidelines
B. Prevention of errors and omissions
C. Guarding against adverse selection
D. Ensuring adequate policyholder surplus
B. Insurers must minimize the effects of adverse selection on the book of business. - correct
answer- ✅For underwriting to achieve its purpose,
A. Underwriters must select applicants with legal hazards.
B. Insurers must minimize the effects of adverse selection on the book of business.
C. Underwriters must randomly select applicants to insure.
D. Insurers must follow the steps in the underwriting process in strict sequence.
C. Underwriting authority. - correct answer- ✅Underwriting guidelines reflect the levels of
A. Responsibility by job title.
B. Loss exposure.
C. Underwriting authority.
D. Written premium by type of insurance.
D. Guarding against adverse selection - correct answer- ✅To achieve profitability, the
underwriting function serves which one of the following additional purposes?
A. Transferring the risks of individuals and businesses
B. Enforcing underwriting goals
C. Adding to policyholder surplus
D. Guarding against adverse selection
, C. Underwriting practices must generate policy premiums that exceed losses and expenses. -
correct answer- ✅Victor, the sales manager for Hallbinger's Insurance Company, wants the
company to grow in written premium. He wants his agents to write more auto and homeowners
business. In order to do so, the company must have adequate capacity. Which one of the
following impacts Victor's agents and the company the most concerning surplus and capacity?
A. Sales must submit business with a lower-than-average chance of loss.
B. Claims must pay only covered losses and have low expenses.
C. Underwriting practices must generate policy premiums that exceed losses and expenses.
D. Research and development must create policies which are marketable.
C. Develop and maintain a profitable book of business for the insurer. - correct answer- ✅The
principal purpose of underwriting is to
A. Insure only those applicants with minimal or no loss exposure.
B. Decline to insure those applicants with a risk of incurring a severe loss.
C. Develop and maintain a profitable book of business for the insurer.
D. Educate producers regarding the insurer's underwriting guidelines.
D. Develop and maintain a profitable book of business for the insurer. - correct answer- ✅The
purpose of underwriting is to
A. Maximize the impact of adverse selection on the portfolio.
B. "Pre-qualify" or field underwrite applicants.
C. Compile information to develop a profile of loss exposures.
D. Develop and maintain a profitable book of business for the insurer.
B. Adverse selection. - correct answer- ✅Sofie and the members of her homeowner's
association have homeowner's policies on their coastal dwellings. They have heard that there
are eleven named hurricane storms predicted for their coastal area this year. Sofie and the
homeowner association members plan to increase their homeowner's property coverage limits
to handle their concern about the possible hurricane damage. Their action is known as
A. Prevention of inadequate property limits.
B. Adverse selection.
C. Prevention of errors and omission claims.
D. Property limits assessment.
