AU 60 Exam Practice Questions and Answers

AU 60 Exam Practice Questions and Answers To achieve profitability, the underwriting function serves which one of the following additional purposes? - Answer-C. Guarding against adverse selection Which one of the following will draft a manuscript policy or endorsement that is worded to address the specific needs of the insured - Answer-Line underwriter Depending on the type of insurance, insurers use automated underwriting systems to - Answer-Encode underwriting guidelines. Specialty insurers such as those offering surety bonds, aviation insurance, and livestock mortality insurance usually - Answer-Centralize underwriting authority. All of the following statements are true regarding the factors affecting the formation of an insurer's underwriting policy, EXCEPT: - Answer-The higher an insurer's premium-to-surplus ratio, the greater its ability to expand premium writings.v Argot Stock Insurance Company's (Argot) net income is $1,000,000 and its average owners' equity is $16,500,000. Argot's average policyholders' surplus is $20,000,000. Using the GAAP approach, which one of the following is Argot's return on equity? - Answer-Argot's return on EMILLECT 2024/2025 ACADEMIC YEAR ©2024 EMILLECT. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER, 2024 Page 2/15 equity using the GAAP approach is 6 percent, determined by net income ($1,000,000) divided by average owners' equity ($16,500,000). Which one of the following is determined by a company's underwriting policy? - Answer- Composition of the insurer's book of business A rating plan available to commercial insurance applicants that awards debits and credits to a submission based on specific categories is known as a(n) - Answer-Schedule rating plan. An underwriter is working with a loss control representative on a new opportunity. Given the complexity of the exposures, a physical survey is conducted by the loss control representative, and a formal report is prepared. The report reveals that the insured owns several unattended properties, and that they were unlocked when the loss control representative conducted the survey. This failure to properly secure an unattended building would be an indicator to the underwriter of which one of the following types of hazard? - Answer-Morale Which one of the following is a financial measure of underwriting performance? - Answer- Combined ratio Which one of the following statements is correct regarding nonfinancial measures of underwriting results? - Answer-Selection standards for underwriters usually support overall underwriting goals and are evaluated during audits. Which one of the following statements is correct with respect to market conduct examinations? - Answer-They protect both insurers and consumers from unfair insurer practices. EMILLECT 2024/2025 ACADEMIC YEAR ©2024 EMILLECT. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER, 2024 Page 3/15 Emma is a workers compensation underwriter. She has been advised that one of her insureds is expanding its operations, and she is not sure how to classify the new payroll. Which one of the following of her fellow employees should Emma go to for help? - Answer-Premium auditor Wrap-ups do not usually include which one of the following coverages? - Answer-Auto Which one of the following statements is true regarding additional insureds? - Answer- Additional insured endorsements restrict coverage to those claims arising out of the named insureds operations. Which one of the following factors about an employers' compensation program could indicate that the insurer is receiving a lower premium relative to the exposure assumed? - Answer- Low Wages The report of management is a report to the users of financial statements, required as part of the company annual report. Which one of the following is true regarding this report? - Answer-The chairman of the board signs it acknowledging the integrity of the report. 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? - Answer-Debt-to- assets ratio = Total liabilities ÷ total assets. $2 million ÷ $3 million = .667. A ration over .5 indicates financing mostly by debt. The company's assets are financed mostly through debt. EMILLECT 2024/2025 ACADEMIC YEAR ©2024 EMILLECT. ALL RIGHTS RESERVED FIRST PUBLISH OCTOBER, 2024 Page 4/15 In financial statement analysis, leverage ratios measure which one of the following? - Answer-The extent to which a company has borrowed money Which one of the following is an example of a liquidity ratio? - Answer-Acid-test ratio Which one of the following statements is true? - Answer-If a nonfinancial company has a debt-to-equity ratio greater than 100 percent, it indicates that the company is financed mostly by debt. Insurers differ in their approach to calculating each account's amount subject. Which one of the following is the objective in making this determination? - Answer-To determine potential loss severity All of the following are objectives of rate regulation, EXCEPT - Answer-Rates promote availability and affordability of insurance. To effectively price insurance accounts, underwriters must be familiar with rate manuals. Which one of the following is true regarding rate manuals? - Answer-Rate manuals provide information concerning the use of endorsements that amend the policy. Which one of the following types of individual rating plans can be used by medium to large insureds in combination with risk control and allows the insured to manage its cash flow by avoiding upfront payments? - Answer-Large dedu