AU 60 - CHAPTER 1 QUESTIONS &
ANSWERS (RATED A+)
Underwriting - ANSWERThe process of selecting insureds, pricing coverage,
determining insurance policy terms and conditions, and then monitoring the
underwriting decisions made
Book of Business - ANSWERA group of policies with a common characteristic, such
as territory or type of coverage, or all policies written by a particular insurer or
agency
Schedule Rating - ANSWERA rating plan that awards debits and credits based on
Premium-to-Surplus Ratio, or Capacity Ratio - ANSWERA capacity ratio that
indicates an insurer's financial strength by relating net written premiums to
policyholders' surplus
Statutory Accounting Principles (SAP) - ANSWERThe accounting principles and
practices that are prescribed or permitted by an insurer's domiciliary state and that
insurers must follow
Return on Equity (ROE) - ANSWERA profitability ratio expressed as a percentage by
dividing a company's net income by its net worth (book value). Depending on the
context, net worth is sometimes called shareholders' equity, owners' equity, or
policyholders' surplus
specific categories, such as the care and condition of the premises or the training
and selection of employees, to modify the final premium to reflect factors that the
class rate does not include
Retrospective Rating - ANSWERA ratemaking technique that adjusts the insured's
premium for the current policy period based on the insured's loss experience during
the current period; paid losses or incurred losses may be used to determine loss
experience
Facultative Reinsurance - ANSWERReinsurance of individual loss exposures in
which the primary insurer chooses which loss exposures to submit to the reinsurer,
and the reinsurer can accept or reject any loss exposures submitted
Account Underwriting - ANSWERA method of underwriting in which all of the
business from a particular applicant is evaluated as a whole
Adverse Selection - ANSWERIn general, the tendency for people with the greatest
probability of loss to be the ones most likely to purchase insurance
ANSWERS (RATED A+)
Underwriting - ANSWERThe process of selecting insureds, pricing coverage,
determining insurance policy terms and conditions, and then monitoring the
underwriting decisions made
Book of Business - ANSWERA group of policies with a common characteristic, such
as territory or type of coverage, or all policies written by a particular insurer or
agency
Schedule Rating - ANSWERA rating plan that awards debits and credits based on
Premium-to-Surplus Ratio, or Capacity Ratio - ANSWERA capacity ratio that
indicates an insurer's financial strength by relating net written premiums to
policyholders' surplus
Statutory Accounting Principles (SAP) - ANSWERThe accounting principles and
practices that are prescribed or permitted by an insurer's domiciliary state and that
insurers must follow
Return on Equity (ROE) - ANSWERA profitability ratio expressed as a percentage by
dividing a company's net income by its net worth (book value). Depending on the
context, net worth is sometimes called shareholders' equity, owners' equity, or
policyholders' surplus
specific categories, such as the care and condition of the premises or the training
and selection of employees, to modify the final premium to reflect factors that the
class rate does not include
Retrospective Rating - ANSWERA ratemaking technique that adjusts the insured's
premium for the current policy period based on the insured's loss experience during
the current period; paid losses or incurred losses may be used to determine loss
experience
Facultative Reinsurance - ANSWERReinsurance of individual loss exposures in
which the primary insurer chooses which loss exposures to submit to the reinsurer,
and the reinsurer can accept or reject any loss exposures submitted
Account Underwriting - ANSWERA method of underwriting in which all of the
business from a particular applicant is evaluated as a whole
Adverse Selection - ANSWERIn general, the tendency for people with the greatest
probability of loss to be the ones most likely to purchase insurance
