AU 60 PRACTICE TEST ATTEMPT #2
QUESTIONS & ANSWERS 100%
CORRECT
An insurance company must have adequate policyholders' surplus if it wishes to: -
ANSWERIncrease its written premium volume.
Which one of the following is a condition that increases the likelihood that a person
will intentionally cause or exaggerate a loss? - ANSWERMoral hazard.
Trending practices vary by type of insurance. Trending may be based on experience
or external indices. Which one of the following statements regarding trending is
accurate? - ANSWERFor liability insurance, separate trending of claim severity and
claim frequency is common.
Liability insurance coverage is provided at various limits of coverage. Which one of
the following statements is true regarding charges to increase limits above the basic
limit? - ANSWERHigher limits can require a portion of the coverage to be reinsured,
and the additional expense must be included in the rate.
Commercial property and inland marine underwriters are most likely to use which
one of the following external sources of information? - ANSWERValuation guides.
All of the following are disadvantages of the partnership type of business ownership,
EXCEPT: - ANSWERPartners are taxed personally for partnership profits.
The most common forms of business ownership include sole proprietorships and: -
ANSWERPartnerships.
Which one of the following is a benefit to listing both the name of the business and
the name of the owner on the policy when insuring a sole proprietorship? -
ANSWERMakes it clear which business the insurer is providing coverage for, if the
individual owns more than one business.
The focus of a line underwriter is: - ANSWEREvaluating new submissions and
renewal underwriting.
Which one of the following ratios is considered the accepted financial measure of an
insurer's underwriting performance? - ANSWERCombined ratio.
, Which one of the following best describes what underwriting regulation seeks to
prevent? - ANSWERApplying different standards or methods of treatment to
insureds who have the same basic characteristics and loss potential.
Tania, an underwriting trainee for Keithly Insurance Company, has received a new
homeowners application for Nanami. The home is to be insured for $150,000. It is a
frame house with a swimming pool and trampoline in the back yard. The grass needs
mowing and the shrubbery needs trimming. Nanami has a marginal credit score.
What is Tania's first step in underwriting the policy for Nanami? - ANSWERCheck to
see if she has the underwriting authority to make the decision.
An insurer decides to discontinue writing a class of workers compensation insureds
because losses on the business have exceeded expectations. Instead, in an effort to
maximize its return on equity, the insurer plans to use its resources to increase the
volume of accounts in an area that offers more promising returns. This need to
redirect the focus for desired business is an example of an underwriting constraint
due to: - ANSWERFinancial capacity.
Which one of the following statements is correct with regard to underwriting
guidelines? - ANSWERCompliance with underwriting guidelines ensures selection of
loss exposures commensurate with planned rate levels.
Which one of the following statements is correct with respect to policy form laws? -
ANSWERDeemer provisions are intended to encourage a prompt review of
submitted policy forms.
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.
LMN Insurance Company has recently opened three new regional offices and has
been growing rapidly. Because of the rapid growth in written premiums, LMN's
premium-to-surplus ratio has risen to three to one. Which one of the following is the
most viable option for LMN to improve its premium-to surplus ratio for regulatory
purposes? - ANSWERArrange for reinsurance to free up surplus.
Rene Worthington is a commercial underwriter whose expertise is in underwriting
retail exposures. Rene has been asked to underwrite an account for a business in
the cosmetic industry with which she has little experience. Where may Rene find
general information about the cosmetic industry? - ANSWERBest's Underwriting
Guide.
For obtaining information regarding an account, upon which one of the following do
underwriters most rely? - ANSWERThe producer.
Which one of the following is 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.
QUESTIONS & ANSWERS 100%
CORRECT
An insurance company must have adequate policyholders' surplus if it wishes to: -
ANSWERIncrease its written premium volume.
Which one of the following is a condition that increases the likelihood that a person
will intentionally cause or exaggerate a loss? - ANSWERMoral hazard.
Trending practices vary by type of insurance. Trending may be based on experience
or external indices. Which one of the following statements regarding trending is
accurate? - ANSWERFor liability insurance, separate trending of claim severity and
claim frequency is common.
Liability insurance coverage is provided at various limits of coverage. Which one of
the following statements is true regarding charges to increase limits above the basic
limit? - ANSWERHigher limits can require a portion of the coverage to be reinsured,
and the additional expense must be included in the rate.
Commercial property and inland marine underwriters are most likely to use which
one of the following external sources of information? - ANSWERValuation guides.
All of the following are disadvantages of the partnership type of business ownership,
EXCEPT: - ANSWERPartners are taxed personally for partnership profits.
The most common forms of business ownership include sole proprietorships and: -
ANSWERPartnerships.
Which one of the following is a benefit to listing both the name of the business and
the name of the owner on the policy when insuring a sole proprietorship? -
ANSWERMakes it clear which business the insurer is providing coverage for, if the
individual owns more than one business.
The focus of a line underwriter is: - ANSWEREvaluating new submissions and
renewal underwriting.
Which one of the following ratios is considered the accepted financial measure of an
insurer's underwriting performance? - ANSWERCombined ratio.
, Which one of the following best describes what underwriting regulation seeks to
prevent? - ANSWERApplying different standards or methods of treatment to
insureds who have the same basic characteristics and loss potential.
Tania, an underwriting trainee for Keithly Insurance Company, has received a new
homeowners application for Nanami. The home is to be insured for $150,000. It is a
frame house with a swimming pool and trampoline in the back yard. The grass needs
mowing and the shrubbery needs trimming. Nanami has a marginal credit score.
What is Tania's first step in underwriting the policy for Nanami? - ANSWERCheck to
see if she has the underwriting authority to make the decision.
An insurer decides to discontinue writing a class of workers compensation insureds
because losses on the business have exceeded expectations. Instead, in an effort to
maximize its return on equity, the insurer plans to use its resources to increase the
volume of accounts in an area that offers more promising returns. This need to
redirect the focus for desired business is an example of an underwriting constraint
due to: - ANSWERFinancial capacity.
Which one of the following statements is correct with regard to underwriting
guidelines? - ANSWERCompliance with underwriting guidelines ensures selection of
loss exposures commensurate with planned rate levels.
Which one of the following statements is correct with respect to policy form laws? -
ANSWERDeemer provisions are intended to encourage a prompt review of
submitted policy forms.
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.
LMN Insurance Company has recently opened three new regional offices and has
been growing rapidly. Because of the rapid growth in written premiums, LMN's
premium-to-surplus ratio has risen to three to one. Which one of the following is the
most viable option for LMN to improve its premium-to surplus ratio for regulatory
purposes? - ANSWERArrange for reinsurance to free up surplus.
Rene Worthington is a commercial underwriter whose expertise is in underwriting
retail exposures. Rene has been asked to underwrite an account for a business in
the cosmetic industry with which she has little experience. Where may Rene find
general information about the cosmetic industry? - ANSWERBest's Underwriting
Guide.
For obtaining information regarding an account, upon which one of the following do
underwriters most rely? - ANSWERThe producer.
Which one of the following is 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.
