AU 60 CHAPTER 7 PRACTICE
QUESTIONS & ANSWERS 100%
SOLVED
Actuaries and underwriters both have roles in pricing insurance products. What
would be the underwriters' primary pricing role? - ANSWERCharging a sufficient
premium for the risk assumed.
In addition to the conditions included in the law of large numbers, commercially
insurable loss exposures are considered by insurers to be NOT ____________. -
ANSWERCatastrophic.
An insurance rate developed by an ISO field representative through a physical visit
to a particular property and development of an individual advisory loss cost is known
as a - ANSWERSpecific fire rate.
I Pricing - ANSWERThe process of setting a price for a product or service and
establishing the terms and conditions for the insurance agreement. While actuaries
establish overall rates, underwriters have the primary role in individual account
pricing.
Exposure Unit - ANSWERA fundamental measure of the loss exposure assumed by
an insurer.
Premium Base - ANSWERThe unit in which the exposure is measured, such as
gross sales or payroll.
Homogeneous - ANSWERUnits of exposure that face approximately the same
expected frequency and severity of loss, it is ensured through classification systems
and the refinement of those systems. Insurance classification systems group risks
that share similar characteristics and have the same likelihood of loss.
n underwriting an account, all of the following statements are true, EXCEPT: -
ANSWERUnderwriters need to be familiar with the rate applicable to each
classification.
Individual rating plans use different approaches to modify the rate for an account.
Which one of the following types of individual rating plans is used to modify the
premium of liability insurance policies based on risk characteristics such as condition
of premises and equipment, and safety programs? - ANSWERSchedule rating plan.
Which one of the following types of rating plans is used most commonly for workers
compensation insurance? - ANSWERParticipating plan.
, Insurers do not have to perform mid-term pricing on composite-rated accounts
because: - ANSWERChanges in exposure will be discovered by premium audit at
the end of the policy term.
Insurance classification systems group risks that share similar characteristics and
that usually: - ANSWERHave the same likelihood of loss.
Insurer People's Protection raised its Country Estate policies' rate by three percent in
a declining economic market, which created huge profits for People's Protection. The
next year, hoping for additional profits, the insurer increased rates only two percent
maintaining that a five percent increase over two years was reasonable, because
country estate owners' insurance products were designed to protect a wealthier
customer who could afford to pay higher premiums.
In which ways would People's Protection's second set of rates at two percent be
considered as excessive? - ANSWERIf the rates generate an unreasonable profit for
People's Protection.
In ratemaking, the amount included to pay such things as future acquisition costs,
overhead, and premium taxes is referred to as: - ANSWERThe expense provision.
In ratemaking, the component included to pay future claims and loss adjustment
expenses is referred to as: - ANSWERProspective loss costs.
Auto Insurer T insured 100,000 cars each year during a three year experience
period, and its incurred losses were $30 million. What is the pure premium per car
year? - ANSWER$100.
Auto Insurer B is calculating the pure premium based on insured losses of $8 million
and earned-car years of 200,000. The pure premium is: - ANSWER$40.
Due to poor loss experience in its product liability line of insurance, an insurer wants
to adjust its current insurance rates. The insurer's actual loss ratio is 45 percent and
the expected loss ratio is 40 percent. Using the loss ratio ratemaking method, which
one of the following represents the indicated rate change? - ANSWER12.5%
increase.
Unusual rate fluctuations could result from occasional large losses, whether from
large individual losses or from an accumulation of smaller losses from a single event.
In liability insurance, these fluctuations are controlled by using: - ANSWEROnly
basic limit losses.
In ratemaking, most losses from catastrophic events, such as hurricanes, are
excluded from ratemaking data and replaced by a: - ANSWERFlat catastrophe
charge.
One of the types of rates used by underwriters to price insurance is judgment rates.
Which one of the following is true regarding judgment rates? - ANSWERJudgment
rates are developed by reviewing individual account characteristics.
QUESTIONS & ANSWERS 100%
SOLVED
Actuaries and underwriters both have roles in pricing insurance products. What
would be the underwriters' primary pricing role? - ANSWERCharging a sufficient
premium for the risk assumed.
In addition to the conditions included in the law of large numbers, commercially
insurable loss exposures are considered by insurers to be NOT ____________. -
ANSWERCatastrophic.
An insurance rate developed by an ISO field representative through a physical visit
to a particular property and development of an individual advisory loss cost is known
as a - ANSWERSpecific fire rate.
I Pricing - ANSWERThe process of setting a price for a product or service and
establishing the terms and conditions for the insurance agreement. While actuaries
establish overall rates, underwriters have the primary role in individual account
pricing.
Exposure Unit - ANSWERA fundamental measure of the loss exposure assumed by
an insurer.
Premium Base - ANSWERThe unit in which the exposure is measured, such as
gross sales or payroll.
Homogeneous - ANSWERUnits of exposure that face approximately the same
expected frequency and severity of loss, it is ensured through classification systems
and the refinement of those systems. Insurance classification systems group risks
that share similar characteristics and have the same likelihood of loss.
n underwriting an account, all of the following statements are true, EXCEPT: -
ANSWERUnderwriters need to be familiar with the rate applicable to each
classification.
Individual rating plans use different approaches to modify the rate for an account.
Which one of the following types of individual rating plans is used to modify the
premium of liability insurance policies based on risk characteristics such as condition
of premises and equipment, and safety programs? - ANSWERSchedule rating plan.
Which one of the following types of rating plans is used most commonly for workers
compensation insurance? - ANSWERParticipating plan.
, Insurers do not have to perform mid-term pricing on composite-rated accounts
because: - ANSWERChanges in exposure will be discovered by premium audit at
the end of the policy term.
Insurance classification systems group risks that share similar characteristics and
that usually: - ANSWERHave the same likelihood of loss.
Insurer People's Protection raised its Country Estate policies' rate by three percent in
a declining economic market, which created huge profits for People's Protection. The
next year, hoping for additional profits, the insurer increased rates only two percent
maintaining that a five percent increase over two years was reasonable, because
country estate owners' insurance products were designed to protect a wealthier
customer who could afford to pay higher premiums.
In which ways would People's Protection's second set of rates at two percent be
considered as excessive? - ANSWERIf the rates generate an unreasonable profit for
People's Protection.
In ratemaking, the amount included to pay such things as future acquisition costs,
overhead, and premium taxes is referred to as: - ANSWERThe expense provision.
In ratemaking, the component included to pay future claims and loss adjustment
expenses is referred to as: - ANSWERProspective loss costs.
Auto Insurer T insured 100,000 cars each year during a three year experience
period, and its incurred losses were $30 million. What is the pure premium per car
year? - ANSWER$100.
Auto Insurer B is calculating the pure premium based on insured losses of $8 million
and earned-car years of 200,000. The pure premium is: - ANSWER$40.
Due to poor loss experience in its product liability line of insurance, an insurer wants
to adjust its current insurance rates. The insurer's actual loss ratio is 45 percent and
the expected loss ratio is 40 percent. Using the loss ratio ratemaking method, which
one of the following represents the indicated rate change? - ANSWER12.5%
increase.
Unusual rate fluctuations could result from occasional large losses, whether from
large individual losses or from an accumulation of smaller losses from a single event.
In liability insurance, these fluctuations are controlled by using: - ANSWEROnly
basic limit losses.
In ratemaking, most losses from catastrophic events, such as hurricanes, are
excluded from ratemaking data and replaced by a: - ANSWERFlat catastrophe
charge.
One of the types of rates used by underwriters to price insurance is judgment rates.
Which one of the following is true regarding judgment rates? - ANSWERJudgment
rates are developed by reviewing individual account characteristics.
