7/13/25, 12:07
PM
CPCU 540: MULTIPLE CHOICE EXAM QUESTIONS AND
ANSWERS WITH COMPLETE SOLUTIONS VERIFIED
GRADED A++ LATEST UPDATE 2025/2026
Terms in this set (208)
What effect, if any, will a It will increase both 3 multiple
reduction in an net income and choice options
insurer's loss reserves have on policyholders'
net income and policyholders' surplus.
surplus in the year that any
such adjustment is made?
Krista was reviewing the Cash flows from 3 multiple
statement of cash flows for financing activities choice options
Goshen Insurance. Which one of
the following describes a
section of the statement of
cash flows?
Payment of dividends is one way Repurchase 3 multiple
to corporate stock. choice options
distribute income to company
owners. An additional way to
distribute income to
1/
36
,7/13/25, 12:07
PM
company owners is to
Based on the coefficient of Mean return of 10%; 3 multiple
variation, which one of the standard deviation choice options
following investment of 25%
portfolios has the lowest
relative risk?
Insurers can use reinsurance Providing surplus 3 multiple
in several ways to manage relief. choice options
their capital. Commissions paid
by the reinsurer to the primary
insurer to cover part or all of
the primary insurer's policy
acquisition expenses help
manage capital by
In evaluating underwriting The portion of written premiums
profitability, the analyst that corresponds to the
usually compares losses and coverage that has already been
loss adjustment expense provided.
amounts to 3 multiple choice options
Risky Insurance Company has a Is required to place Risky Insurance
risk-based capital (RBC) level of Company under regulatory control.
65% of the authorized control
level. At this level, the 3 multiple choice options
regulator
Financial theory When faced with a choice of investments
assumes that that have the same potential payoff, a
2/
36
,7/13/25, 12:07
PM
investors are risk risk- adverse investor will choose the
averse. Which one one with the least risk.
of the following
3 multiple choice options
statements best
describes risk
averse
behavior?
If insurer loss reserves Policyholders' surplus will be 3 multiple
are too low, overstated. choice options
Grayson Insurers is The higher rate paid on catastrophe bonds
looking for innovative compensates investors for assuming
approaches to additional risk.
finance the risk it
3 multiple choice options
undertakes. Which
one of the following
will Grayson most
likely discover?
To determine Inadequate insurance rates 3 multiple
profitability, an choice options
insurer should
consider whether
growth resulted
from rate increase
or new policies.
Insurers
3/
36
, 7/13/25, 12:07
PM
should be
concerned with
growth due to
which one of the
following?
Which one of the Combined ratio 3 multiple
following ratios choice options
presents a clear
picture of an
insurer's overall
underwriting
performance?
An insurer's liquidity Cash inflows and outflows. 3 multiple
depends on its choice options
The basic account Assets = Liabilities + Net Worth 3 multiple
equation on which choice options
the balance sheet is
structured is
Which one of the Average value method 3 multiple
following choice options
methods of
establishing case
reserves is used
most
often when there are
small variations in
4/
36
PM
CPCU 540: MULTIPLE CHOICE EXAM QUESTIONS AND
ANSWERS WITH COMPLETE SOLUTIONS VERIFIED
GRADED A++ LATEST UPDATE 2025/2026
Terms in this set (208)
What effect, if any, will a It will increase both 3 multiple
reduction in an net income and choice options
insurer's loss reserves have on policyholders'
net income and policyholders' surplus.
surplus in the year that any
such adjustment is made?
Krista was reviewing the Cash flows from 3 multiple
statement of cash flows for financing activities choice options
Goshen Insurance. Which one of
the following describes a
section of the statement of
cash flows?
Payment of dividends is one way Repurchase 3 multiple
to corporate stock. choice options
distribute income to company
owners. An additional way to
distribute income to
1/
36
,7/13/25, 12:07
PM
company owners is to
Based on the coefficient of Mean return of 10%; 3 multiple
variation, which one of the standard deviation choice options
following investment of 25%
portfolios has the lowest
relative risk?
Insurers can use reinsurance Providing surplus 3 multiple
in several ways to manage relief. choice options
their capital. Commissions paid
by the reinsurer to the primary
insurer to cover part or all of
the primary insurer's policy
acquisition expenses help
manage capital by
In evaluating underwriting The portion of written premiums
profitability, the analyst that corresponds to the
usually compares losses and coverage that has already been
loss adjustment expense provided.
amounts to 3 multiple choice options
Risky Insurance Company has a Is required to place Risky Insurance
risk-based capital (RBC) level of Company under regulatory control.
65% of the authorized control
level. At this level, the 3 multiple choice options
regulator
Financial theory When faced with a choice of investments
assumes that that have the same potential payoff, a
2/
36
,7/13/25, 12:07
PM
investors are risk risk- adverse investor will choose the
averse. Which one one with the least risk.
of the following
3 multiple choice options
statements best
describes risk
averse
behavior?
If insurer loss reserves Policyholders' surplus will be 3 multiple
are too low, overstated. choice options
Grayson Insurers is The higher rate paid on catastrophe bonds
looking for innovative compensates investors for assuming
approaches to additional risk.
finance the risk it
3 multiple choice options
undertakes. Which
one of the following
will Grayson most
likely discover?
To determine Inadequate insurance rates 3 multiple
profitability, an choice options
insurer should
consider whether
growth resulted
from rate increase
or new policies.
Insurers
3/
36
, 7/13/25, 12:07
PM
should be
concerned with
growth due to
which one of the
following?
Which one of the Combined ratio 3 multiple
following ratios choice options
presents a clear
picture of an
insurer's overall
underwriting
performance?
An insurer's liquidity Cash inflows and outflows. 3 multiple
depends on its choice options
The basic account Assets = Liabilities + Net Worth 3 multiple
equation on which choice options
the balance sheet is
structured is
Which one of the Average value method 3 multiple
following choice options
methods of
establishing case
reserves is used
most
often when there are
small variations in
4/
36
