AU 60 PRACTICE TEST ATTEMPT #1
QUESTIONS & ANSWERS 100%
SOLVED
The overarching purpose of underwriting is: - ANSWERTo develop and maintain a
profitable book of business.
An underwriter receives a renewal application for a property quote from his producer.
The applicant has had a series of small losses in the recent past. The underwriter is
debating whether to reject the submission or quote it with a property deductible of
$5,000. During which one of the following steps in the underwriting process is the
underwriter involved? - ANSWERDeveloping underwriting alternatives.
All of the following are advantages of the sole proprietorship type of business
ownership, EXCEPT: - ANSWERLimited liability.
Sean is a general partner in a small employment business. The general public is
unaware of Sean's interest as a partner. Sean is a: - ANSWERSecret partner.
The potential for hidden underwriting risks of associated insureds is greatest with
which one of the following forms of ownership? - ANSWERCorporation.
Which one of the following statements is correct regarding wrap-ups? -
ANSWERActivities covered by the wrap-up program should be excluded from the
participating contractors' primary insurance policies.
An insurance company needs to hire an employee with knowledge of insurance
policy forms and the ability to relate policy provisions to the loss exposures of
individual policyholders. The person will also prepare premium quotes and process
cancellations. Which one of the following employees would best suit the company's
needs? - ANSWERLine underwriter.
Which one of the following is a financial measure of underwriting performance? -
ANSWERCombined ratio.
Underwriting regulations seek to ensure correct classification of insureds because: -
ANSWERMisclassification can result in inadequate premiums and drain an insurer's
surplus.
S
Loss trending practices vary by type of insurance. A special trending problem unique
to workers compensation insurance exists because: - ANSWERStatutory benefits
can change unexpectedly.
, How many years of loss experience do most states require insurers to use for fire
insurance ratemaking purposes? - ANSWER5 years.
XYZ Corp. purchased blanket insurance to cover two of its buildings. Building A is
valued at $1,000,000, and Building B is valued at $2,000,000. XYZ decides to
purchase a blanket limit of $2,500,000. However, the underwriter decides to
implement a 20 percent margin limit. Based on this information, if a covered loss
occurred at Building A, what is the maximum amount of coverage that policy will
provide? - ANSWER$1,200,000.
pecialty insurers such as those offering surety bonds, aviation insurance, and
livestock mortality insurance usually: - ANSWERCentralize underwriting authority.
Which one of the following financial ratios is key for evaluating insurer solvency? -
ANSWERPremium to surplus ratio.
Which one of the following cases illustrates how underwriting guidelines ensure
uniformity and consistency? - ANSWERChloe and Elin are underwriting identical
homeowners risks for Cromley Insurance Company. The applicants have the same
protection class, construction, and coverage amount. After checking the underwriting
guidelines, they come to the same underwriting decision.
The USA Patriot Act restricts United States firms, including those in the insurance
industry, from: - ANSWEREngaging in business with persons and organizations on
the Specifically Designated Nationals (SDN) list.
During a general market conduct examination of underwriting, examiners would look
for evidence of all of the following, EXCEPT: - ANSWERInconsistent claim practices.
Which one of the following statements is correct with regard to regulation and
insurers' operations? - ANSWERUnderwriting regulation indirectly influences
ratemaking and claim settlement.
Information efficiency refers to: - ANSWERHow the value of the information to
underwriting decisions must be weighed relative to its expense and its timeliness.
If an account is experienced rated, for which of the following reasons might an
underwriter have to contact the prior carrier? - ANSWERTo confirm or update the
loss history provided by the insured.
Most insurers have some system for keeping previous applications for which they
declined to write insurance. These files can be valuable in evaluating new business
because they: - ANSWERDocument earlier decisions and can greatly reduce the
amount of work the new application requires.
Lucas is a commercial underwriter reviewing an automobile insurance application for
Jancy Marketing (Jancy). Jancy provides its sales representatives with vehicles to
use for business purposes only. The producer states that Jancy has a strong vehicle
maintenance program and strict driver selection criteria. Lucas does not have the
time or resources to order a risk control report. Which one of the following sources of
QUESTIONS & ANSWERS 100%
SOLVED
The overarching purpose of underwriting is: - ANSWERTo develop and maintain a
profitable book of business.
An underwriter receives a renewal application for a property quote from his producer.
The applicant has had a series of small losses in the recent past. The underwriter is
debating whether to reject the submission or quote it with a property deductible of
$5,000. During which one of the following steps in the underwriting process is the
underwriter involved? - ANSWERDeveloping underwriting alternatives.
All of the following are advantages of the sole proprietorship type of business
ownership, EXCEPT: - ANSWERLimited liability.
Sean is a general partner in a small employment business. The general public is
unaware of Sean's interest as a partner. Sean is a: - ANSWERSecret partner.
The potential for hidden underwriting risks of associated insureds is greatest with
which one of the following forms of ownership? - ANSWERCorporation.
Which one of the following statements is correct regarding wrap-ups? -
ANSWERActivities covered by the wrap-up program should be excluded from the
participating contractors' primary insurance policies.
An insurance company needs to hire an employee with knowledge of insurance
policy forms and the ability to relate policy provisions to the loss exposures of
individual policyholders. The person will also prepare premium quotes and process
cancellations. Which one of the following employees would best suit the company's
needs? - ANSWERLine underwriter.
Which one of the following is a financial measure of underwriting performance? -
ANSWERCombined ratio.
Underwriting regulations seek to ensure correct classification of insureds because: -
ANSWERMisclassification can result in inadequate premiums and drain an insurer's
surplus.
S
Loss trending practices vary by type of insurance. A special trending problem unique
to workers compensation insurance exists because: - ANSWERStatutory benefits
can change unexpectedly.
, How many years of loss experience do most states require insurers to use for fire
insurance ratemaking purposes? - ANSWER5 years.
XYZ Corp. purchased blanket insurance to cover two of its buildings. Building A is
valued at $1,000,000, and Building B is valued at $2,000,000. XYZ decides to
purchase a blanket limit of $2,500,000. However, the underwriter decides to
implement a 20 percent margin limit. Based on this information, if a covered loss
occurred at Building A, what is the maximum amount of coverage that policy will
provide? - ANSWER$1,200,000.
pecialty insurers such as those offering surety bonds, aviation insurance, and
livestock mortality insurance usually: - ANSWERCentralize underwriting authority.
Which one of the following financial ratios is key for evaluating insurer solvency? -
ANSWERPremium to surplus ratio.
Which one of the following cases illustrates how underwriting guidelines ensure
uniformity and consistency? - ANSWERChloe and Elin are underwriting identical
homeowners risks for Cromley Insurance Company. The applicants have the same
protection class, construction, and coverage amount. After checking the underwriting
guidelines, they come to the same underwriting decision.
The USA Patriot Act restricts United States firms, including those in the insurance
industry, from: - ANSWEREngaging in business with persons and organizations on
the Specifically Designated Nationals (SDN) list.
During a general market conduct examination of underwriting, examiners would look
for evidence of all of the following, EXCEPT: - ANSWERInconsistent claim practices.
Which one of the following statements is correct with regard to regulation and
insurers' operations? - ANSWERUnderwriting regulation indirectly influences
ratemaking and claim settlement.
Information efficiency refers to: - ANSWERHow the value of the information to
underwriting decisions must be weighed relative to its expense and its timeliness.
If an account is experienced rated, for which of the following reasons might an
underwriter have to contact the prior carrier? - ANSWERTo confirm or update the
loss history provided by the insured.
Most insurers have some system for keeping previous applications for which they
declined to write insurance. These files can be valuable in evaluating new business
because they: - ANSWERDocument earlier decisions and can greatly reduce the
amount of work the new application requires.
Lucas is a commercial underwriter reviewing an automobile insurance application for
Jancy Marketing (Jancy). Jancy provides its sales representatives with vehicles to
use for business purposes only. The producer states that Jancy has a strong vehicle
maintenance program and strict driver selection criteria. Lucas does not have the
time or resources to order a risk control report. Which one of the following sources of
