AU60 EXAM QUESTIONS &
ANSWERS (GRADED A+)
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.
underwriting - ANSWERThe process of selecting insureds, pricing coverage,
determining insurance policy terms and conditions, and then monitoring the
underwriting decisions made.
fee for service company - ANSWERan independent contractor who specializes in
loss control work and who is paid for each loss control survey performed
Actual Cash Value - ANSWERA method in valuing property that is calculated as the
cost to replace or repair property minus depreciation, the fair market value, or a
valuation determined by the broad evidence rule.
replacement cost - ANSWERThe cost to repair or replace property using new
materials of like kind and quality with no deduction for depreciation.
common-size statement - ANSWERA financial statement in which amounts are
reported as a percentage of a base figure
General Accepted Accounting Principles (GAAP) - ANSWERthe common set of
standards and procedures used in the preparation of financial statements to ensure
consistency of presentation and reported results
fixed assets - ANSWERResources that cannot be expected to be sold or consumed
within the business's normal operating cycle and that are usually considered to be
long lived.
DuPont Indentity - ANSWERan analysis of ROA and ROE by breaking them down
into their component ratios
Josh received an all lines submission for a manufacturing risk that seemed to have
severe exposure for multiple lines. He had limited knowledge of the industry, so he
decided to consult with an external expert. After gaining additional knowledge from
the subject-matter expert, Josh decided to decline the submission for all lines. This is
an example of an underwriter using an external stakeholder to help do which one of
the following?
Select one:
A. Forecast potential losses
B. Translate concerns to internal shareholders
C. Determine the appropriate treatment technique
,D. Provide data for predictive modeling - ANSWERC. Determine the appropriate
treatment technique
While specialized analytics and data-driven tools enhance the underwriter's risk
selection process, which one of the following underwriting skills is required to
evaluate the effect of a risk's poor attitude regarding safety and risk management?
Select one:
A. Communication
B. Judgement
C. Negotiation
D. Mathematical - ANSWERB. Judgement
adverse selection - ANSWERIn general, the tendency for people with the greatest
probability of loss to be the ones most likely to purchase insurance.
policyholders' surplus - ANSWERUnder statutory accounting principles (SAP), an
insurer's total admitted assets minus its total liabilities.
underwriting guidelines (UW guide) - ANSWERA written manual that communicates
an insurer's underwriting policy and that specifies the attributes of an account that an
insurer is willing to insure.
predictive modeling - ANSWERA process in which historical data based on
behaviors and events is blended with multiple variables and used to construct
models of anticipated future outcomes.
catastrophe model - ANSWERA type of computer that estimates losses from future
potential catastrophic events.
telematics - ANSWERThe use of technological devices to transmit data via wireless
communication and GPS tracking.
capacity - ANSWERThe amount of business an insure is able to write, usually based
on a comparison of the insurer's written premiums to its policyholder's surplus.
manuscript policy or manuscript endorsement - ANSWERAn insurance policy or
endorsement that specifically drafted according to terms negotiated between a
specific insured (or group of insureds) and an insurer.
big data - ANSWERSets of data that are too large to be gathered and analyzed by
traditional methods.
smart product - ANSWERAn innovative item that uses sensors; wireless sensor
networks; and data collection, transmission, and analysis to further enable the item
to be faster, more useful, or otherwise improved.
internet of things (IoT) - ANSWERA network of objects that transmit data to each
other and central hubs through the internet.
,artificial intelligence (AI) - ANSWERComputer processing or output that simulates
human reasoning or knowledge
Machine learning - ANSWERartificial intelligence in which computers continually
teach themselves to make better decisions based on previous results and new data
Deep Learning - ANSWERInsights into data use and processing gained by
combining artificial intelligence and machine learning. It is based on algorithms
derived from artificial neural networks.
data mining - ANSWERThe analysis of large amounts of data to find new
relationships and patterns that will assist in developing business solutions.
Unfair Discrimination - ANSWERapplying different standards or methods of
treatment to insureds who have the same basic characteristics and loss potential,
such as charging higher-than-normal rates for an auto insurance applicant based
solely on the applicant's race, religion, or ethnic background
declination - ANSWERAn insurer's refusal to provide coverage to an applicant who
has made a written request to the insurer or its producer, or a producer's refusal to
forward such a written request to an insurer.
termination - ANSWERAn insurer's cancellation of a policy during the policy term or
nonrenewable of coverage at the end of a policy term.
notification requirements - ANSWERregulatory requirements relating to timing and
contents of an insurers notice to an insured of the declination, termination and
nonrenewal of insurance coverage
Market Conduct Examination - ANSWERAn analysis of an insurer's practices in four
operational areas: sales and advertising, underwriting, ratemaking, and claim
handling.
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
application - ANSWERA legal document that provides information obtained directly
from an applicant requesting insurance and that an insurer can use for underwriting
and claim handling purposes.
loss history - ANSWERA listing of past claims, including the date of occurrence, the
line of business, the type or description of the claim, the date of the claim, the
amount paid, the amount reserved, and the claim's current status.
experience rating plan - ANSWERA rating plan that increases or reduces the
premium for a future period based on the insured's own loss experience for a period
in the recent past.
, insurable interest - ANSWERAn interest in the subject of an insurance policy that is
not unduly remote and that would cause the interested party to suffer financial loss if
an insured event occurred.
named insured - ANSWERA person, corporation, partnership, or other entity
identified as an insured party in an insurance policy's declarations page.
Sole Proprietorship - ANSWERa form of business in which one person own the
business assets and is personally liable for the business debts
partnership - ANSWERa for-profit business entity jointly owned by two or more
persons who share ownership and profits (or losses), although not necessarily on an
equal basis
corporation - ANSWERan entity organized under law and entitled to the same rights
as a person, distinct from its owners
shareholder - ANSWERan individual owner whose liability is limited to his or her
investment in the corporation
unincorporated association - ANSWERA voluntary association of individuals acting
together under a common name to accomplish a lawful purpose.
wrap-up - ANSWERA risk management program for large construction projects in
which the sponsor selects coverages for all contractors and subcontractors working
on the project, enabling participating contractors to reduce their bid by the cost of the
coverage it provides.
loss payee - ANSWERA party entitled to share in whatever loss payment an insured
receives.
vicarious liability - ANSWERA legal responsibility that occurs when one party is held
liable for the actions of a subordinate or associate because of the relationship
between the two parties.
security interest - ANSWERAn interest in property (real or personal) that allows the
property to be sold on default to satisfy the debt for which the security interest was
given.
risk management - ANSWERthe process of making an implementing decisions that
enable an organization to optimize its level of risk
enterprise risk management - ANSWERAn approach to managing all of an
organization's key business risks and opportunities with the intent of maximizing
shareholder value.
employee - ANSWERA person hired to perform services for another under the
direction and control of the other party, called the employer.
ANSWERS (GRADED A+)
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.
underwriting - ANSWERThe process of selecting insureds, pricing coverage,
determining insurance policy terms and conditions, and then monitoring the
underwriting decisions made.
fee for service company - ANSWERan independent contractor who specializes in
loss control work and who is paid for each loss control survey performed
Actual Cash Value - ANSWERA method in valuing property that is calculated as the
cost to replace or repair property minus depreciation, the fair market value, or a
valuation determined by the broad evidence rule.
replacement cost - ANSWERThe cost to repair or replace property using new
materials of like kind and quality with no deduction for depreciation.
common-size statement - ANSWERA financial statement in which amounts are
reported as a percentage of a base figure
General Accepted Accounting Principles (GAAP) - ANSWERthe common set of
standards and procedures used in the preparation of financial statements to ensure
consistency of presentation and reported results
fixed assets - ANSWERResources that cannot be expected to be sold or consumed
within the business's normal operating cycle and that are usually considered to be
long lived.
DuPont Indentity - ANSWERan analysis of ROA and ROE by breaking them down
into their component ratios
Josh received an all lines submission for a manufacturing risk that seemed to have
severe exposure for multiple lines. He had limited knowledge of the industry, so he
decided to consult with an external expert. After gaining additional knowledge from
the subject-matter expert, Josh decided to decline the submission for all lines. This is
an example of an underwriter using an external stakeholder to help do which one of
the following?
Select one:
A. Forecast potential losses
B. Translate concerns to internal shareholders
C. Determine the appropriate treatment technique
,D. Provide data for predictive modeling - ANSWERC. Determine the appropriate
treatment technique
While specialized analytics and data-driven tools enhance the underwriter's risk
selection process, which one of the following underwriting skills is required to
evaluate the effect of a risk's poor attitude regarding safety and risk management?
Select one:
A. Communication
B. Judgement
C. Negotiation
D. Mathematical - ANSWERB. Judgement
adverse selection - ANSWERIn general, the tendency for people with the greatest
probability of loss to be the ones most likely to purchase insurance.
policyholders' surplus - ANSWERUnder statutory accounting principles (SAP), an
insurer's total admitted assets minus its total liabilities.
underwriting guidelines (UW guide) - ANSWERA written manual that communicates
an insurer's underwriting policy and that specifies the attributes of an account that an
insurer is willing to insure.
predictive modeling - ANSWERA process in which historical data based on
behaviors and events is blended with multiple variables and used to construct
models of anticipated future outcomes.
catastrophe model - ANSWERA type of computer that estimates losses from future
potential catastrophic events.
telematics - ANSWERThe use of technological devices to transmit data via wireless
communication and GPS tracking.
capacity - ANSWERThe amount of business an insure is able to write, usually based
on a comparison of the insurer's written premiums to its policyholder's surplus.
manuscript policy or manuscript endorsement - ANSWERAn insurance policy or
endorsement that specifically drafted according to terms negotiated between a
specific insured (or group of insureds) and an insurer.
big data - ANSWERSets of data that are too large to be gathered and analyzed by
traditional methods.
smart product - ANSWERAn innovative item that uses sensors; wireless sensor
networks; and data collection, transmission, and analysis to further enable the item
to be faster, more useful, or otherwise improved.
internet of things (IoT) - ANSWERA network of objects that transmit data to each
other and central hubs through the internet.
,artificial intelligence (AI) - ANSWERComputer processing or output that simulates
human reasoning or knowledge
Machine learning - ANSWERartificial intelligence in which computers continually
teach themselves to make better decisions based on previous results and new data
Deep Learning - ANSWERInsights into data use and processing gained by
combining artificial intelligence and machine learning. It is based on algorithms
derived from artificial neural networks.
data mining - ANSWERThe analysis of large amounts of data to find new
relationships and patterns that will assist in developing business solutions.
Unfair Discrimination - ANSWERapplying different standards or methods of
treatment to insureds who have the same basic characteristics and loss potential,
such as charging higher-than-normal rates for an auto insurance applicant based
solely on the applicant's race, religion, or ethnic background
declination - ANSWERAn insurer's refusal to provide coverage to an applicant who
has made a written request to the insurer or its producer, or a producer's refusal to
forward such a written request to an insurer.
termination - ANSWERAn insurer's cancellation of a policy during the policy term or
nonrenewable of coverage at the end of a policy term.
notification requirements - ANSWERregulatory requirements relating to timing and
contents of an insurers notice to an insured of the declination, termination and
nonrenewal of insurance coverage
Market Conduct Examination - ANSWERAn analysis of an insurer's practices in four
operational areas: sales and advertising, underwriting, ratemaking, and claim
handling.
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
application - ANSWERA legal document that provides information obtained directly
from an applicant requesting insurance and that an insurer can use for underwriting
and claim handling purposes.
loss history - ANSWERA listing of past claims, including the date of occurrence, the
line of business, the type or description of the claim, the date of the claim, the
amount paid, the amount reserved, and the claim's current status.
experience rating plan - ANSWERA rating plan that increases or reduces the
premium for a future period based on the insured's own loss experience for a period
in the recent past.
, insurable interest - ANSWERAn interest in the subject of an insurance policy that is
not unduly remote and that would cause the interested party to suffer financial loss if
an insured event occurred.
named insured - ANSWERA person, corporation, partnership, or other entity
identified as an insured party in an insurance policy's declarations page.
Sole Proprietorship - ANSWERa form of business in which one person own the
business assets and is personally liable for the business debts
partnership - ANSWERa for-profit business entity jointly owned by two or more
persons who share ownership and profits (or losses), although not necessarily on an
equal basis
corporation - ANSWERan entity organized under law and entitled to the same rights
as a person, distinct from its owners
shareholder - ANSWERan individual owner whose liability is limited to his or her
investment in the corporation
unincorporated association - ANSWERA voluntary association of individuals acting
together under a common name to accomplish a lawful purpose.
wrap-up - ANSWERA risk management program for large construction projects in
which the sponsor selects coverages for all contractors and subcontractors working
on the project, enabling participating contractors to reduce their bid by the cost of the
coverage it provides.
loss payee - ANSWERA party entitled to share in whatever loss payment an insured
receives.
vicarious liability - ANSWERA legal responsibility that occurs when one party is held
liable for the actions of a subordinate or associate because of the relationship
between the two parties.
security interest - ANSWERAn interest in property (real or personal) that allows the
property to be sold on default to satisfy the debt for which the security interest was
given.
risk management - ANSWERthe process of making an implementing decisions that
enable an organization to optimize its level of risk
enterprise risk management - ANSWERAn approach to managing all of an
organization's key business risks and opportunities with the intent of maximizing
shareholder value.
employee - ANSWERA person hired to perform services for another under the
direction and control of the other party, called the employer.
