AU 60 FINAL EXAM PRACTICE
QUESTIONS & ANSWERS 100%
CORRECT
The common distinction between field underwriters and corporate underwriters is
that line underwriters - ANSWERImplement the steps in the underwriting process.
Corporate underwriters assist underwriting management with formulating
underwriting policy.
Which one of the following statements is correct with regard to regulation and
insurers' operations? - ANSWERSolvency regulation indirectly influences
underwriting by limiting new business for insurers.
Which one of the following Dun & Bradstreet report scores shows how promptly the
company pays its bills relative to terms? - ANSWERPaydex
Which one of the following statements about the balance sheet is correct? -
ANSWERNet worth is positive whenever the value of assets exceeds the value of
liabilities and negative if the value of liabilities exceeds the value of assets.
Which one of the following is a major purpose of the statement of cash flows? -
ANSWERIt is used to assess the ability to generate positive future cash flows.
It is used to assess an organization's need for additional financing.
Which one of the following is an example of a leverage ratio? - ANSWERDebt-to-
equity ratio
Underwriting regulations seek to ensure correct classification of insureds because -
ANSWERMisclassification can result in inadequate premiums and drain an insurer's
surplus.
The primary benefit of using the services of an independent contractor who
specializes in risk control work to inspect properties, rather than the insurer's risk
control representative? - ANSWERQuicker response
John is a risk management specialist for XYZ Company. John examines XYZ's
financial statements on a quarterly basis. Which one of the following best describes
a reason for this analysis? - ANSWERA review of the financial statements helps
John to determine XYZ's insurance needs.
Cost of goods sold appears on the income statements of manufacturing and retail
entities. Which one of the following statements best describes cost of goods sold -
ANSWERCost of goods sold reports expenses after an inventory item is sold.
, Which one of the following types of analysis helps an underwriter identify abnormal
values reported by an organization? - ANSWERVertical analysis
Which one of the following statements is correct with respect to market conduct
examinations? - ANSWERThe Department of Insurance (DOI) may suspend or
revoke the insurer's certificate of authority if it finds that an insurer has violated a law.
Which one of the following insurer representatives often meets with the insured in
difficult circumstances, but can provide the underwriter with valuable information? -
ANSWERClaim representative
An underwriter is attempting to conduct ratio analysis on a company. The underwriter
notices that the company has $3 million in total assets, $1 million in current assets,
$2 million in total liabilities, and $1 million in current liabilities. Which one of the
following conclusions can the underwriter reach by calculating the company's debt-
to-assets ratio? - ANSWERDebt-to-assets ratio = Total liabilities ÷ total assets. $2
million ÷ $3 million = .667. A ratio over .5 indicates financing mostly by debt. The
company's assets are financed mostly through debt.
Liquidity ratios are used to determine a company's ability to pay off its short-term
debts. Typically, the higher the value of the ratio, - ANSWERThe larger the margin of
safety the company possesses to cover its short-term debts.
Which one of the following ratios indicates the adequacy of a company's working
capital to meet its current financial obligations? - ANSWERCurrent ratio
The most recent financial statements for Buddy's Burger Hut reveal the following:
Cash$50,000 Equipment$25,000 Inventory$15,000 Accounts Receivable$2,500
Cost of Goods Sold$125,000 Marketable Securities$5,000 Current Liabilities$50,000
Based on this information, Buddy's Burger Hut's Acid-Test Ratio is -
ANSWERBuddy's Burger Hut's Acid-Test Ratio is 1.15. ($50,000 + $5,000 +
$2,500) / $50,000 = 1.15
An organization that considers both key business risks and opportunities when
formulating its business strategies reflects its commitment to which one of the
following? - ANSWEREnterprise risk management
William is a plumber. He has a contract with a home builder to install the bathrooms
in a new housing development. William will supply the materials and equipment. He
will be paid a fixed fee per house and must complete the job by an agreed deadline.
Which one of the following best describes William's relationship to the home builder?
- ANSWERSubcontractor
Which one of the following sources of underwriting information provides a hazard
index by line of insurance for the various classifications? - ANSWERBest's
Underwriting Guide
Jackson is a commercial lines underwriter. When evaluating an organization's
location, one of the factors that he considers is how susceptible the organization is to
QUESTIONS & ANSWERS 100%
CORRECT
The common distinction between field underwriters and corporate underwriters is
that line underwriters - ANSWERImplement the steps in the underwriting process.
Corporate underwriters assist underwriting management with formulating
underwriting policy.
Which one of the following statements is correct with regard to regulation and
insurers' operations? - ANSWERSolvency regulation indirectly influences
underwriting by limiting new business for insurers.
Which one of the following Dun & Bradstreet report scores shows how promptly the
company pays its bills relative to terms? - ANSWERPaydex
Which one of the following statements about the balance sheet is correct? -
ANSWERNet worth is positive whenever the value of assets exceeds the value of
liabilities and negative if the value of liabilities exceeds the value of assets.
Which one of the following is a major purpose of the statement of cash flows? -
ANSWERIt is used to assess the ability to generate positive future cash flows.
It is used to assess an organization's need for additional financing.
Which one of the following is an example of a leverage ratio? - ANSWERDebt-to-
equity ratio
Underwriting regulations seek to ensure correct classification of insureds because -
ANSWERMisclassification can result in inadequate premiums and drain an insurer's
surplus.
The primary benefit of using the services of an independent contractor who
specializes in risk control work to inspect properties, rather than the insurer's risk
control representative? - ANSWERQuicker response
John is a risk management specialist for XYZ Company. John examines XYZ's
financial statements on a quarterly basis. Which one of the following best describes
a reason for this analysis? - ANSWERA review of the financial statements helps
John to determine XYZ's insurance needs.
Cost of goods sold appears on the income statements of manufacturing and retail
entities. Which one of the following statements best describes cost of goods sold -
ANSWERCost of goods sold reports expenses after an inventory item is sold.
, Which one of the following types of analysis helps an underwriter identify abnormal
values reported by an organization? - ANSWERVertical analysis
Which one of the following statements is correct with respect to market conduct
examinations? - ANSWERThe Department of Insurance (DOI) may suspend or
revoke the insurer's certificate of authority if it finds that an insurer has violated a law.
Which one of the following insurer representatives often meets with the insured in
difficult circumstances, but can provide the underwriter with valuable information? -
ANSWERClaim representative
An underwriter is attempting to conduct ratio analysis on a company. The underwriter
notices that the company has $3 million in total assets, $1 million in current assets,
$2 million in total liabilities, and $1 million in current liabilities. Which one of the
following conclusions can the underwriter reach by calculating the company's debt-
to-assets ratio? - ANSWERDebt-to-assets ratio = Total liabilities ÷ total assets. $2
million ÷ $3 million = .667. A ratio over .5 indicates financing mostly by debt. The
company's assets are financed mostly through debt.
Liquidity ratios are used to determine a company's ability to pay off its short-term
debts. Typically, the higher the value of the ratio, - ANSWERThe larger the margin of
safety the company possesses to cover its short-term debts.
Which one of the following ratios indicates the adequacy of a company's working
capital to meet its current financial obligations? - ANSWERCurrent ratio
The most recent financial statements for Buddy's Burger Hut reveal the following:
Cash$50,000 Equipment$25,000 Inventory$15,000 Accounts Receivable$2,500
Cost of Goods Sold$125,000 Marketable Securities$5,000 Current Liabilities$50,000
Based on this information, Buddy's Burger Hut's Acid-Test Ratio is -
ANSWERBuddy's Burger Hut's Acid-Test Ratio is 1.15. ($50,000 + $5,000 +
$2,500) / $50,000 = 1.15
An organization that considers both key business risks and opportunities when
formulating its business strategies reflects its commitment to which one of the
following? - ANSWEREnterprise risk management
William is a plumber. He has a contract with a home builder to install the bathrooms
in a new housing development. William will supply the materials and equipment. He
will be paid a fixed fee per house and must complete the job by an agreed deadline.
Which one of the following best describes William's relationship to the home builder?
- ANSWERSubcontractor
Which one of the following sources of underwriting information provides a hazard
index by line of insurance for the various classifications? - ANSWERBest's
Underwriting Guide
Jackson is a commercial lines underwriter. When evaluating an organization's
location, one of the factors that he considers is how susceptible the organization is to
