AU 60 Final Exam 2024/2025 with correct
answers
The common distinction between field underwriters and corporate
underwriters is that line underwriters - CORRECT ANSWER
Implement the steps in the underwriting process. Corporate
underwriters assist underwriting management with formulating
...
The common distinction between field underwriters and corporate
underwriters is that line underwriters - CORRECT ANSWER
Implement 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? - CORRECT ANSWER Solvency
regulation indirectly influences underwriting by limiting new business
for insurers.
Underwriting regulations seek to ensure correct classification of
insureds because - CORRECT ANSWER Misclassification 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? - CORRECT ANSWER
Quicker 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? - CORRECT
ANSWER A 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 - CORRECT ANSWER
Cost 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? - CORRECT
ANSWER Vertical analysis
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, -
CORRECT ANSWER The 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? -
CORRECT ANSWER Current 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 -
CORRECT ANSWER Buddy'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? - CORRECT ANSWER
Enterprise 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? -
CORRECT ANSWER Subcontractor
Which one of the following sources of underwriting information
provides a hazard index by line of insurance for the various
classifications? - CORRECT ANSWER Best'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 social inflation. Social inflation is
typically of greatest concern when underwriting which one of the
following lines of business? - CORRECT ANSWER Liability
To understand why insurers charge a certain premium, the
components must be understood. The amount needed to pay future
claims and loss adjustment expenses is referred to as - CORRECT
ANSWER Prospective loss costs.
Given the following data and using the pure premium ratemaking
method, calculate the insurance rate (rounded).
Incurred losses$750,000
Earned exposure units 12,500
Fixed expenses per exposure unit $15
Profit and contingencies factor4% - CORRECT ANSWER The
insurance rate is $78. The pure premium is $750,000/12,500 = $60.
Then the insurance rate = ($60+$15) / (1-0.04) = 78
Which one the following statements is true regarding schedule rating
and individual risk premium modification plans? - CORRECT ANSWER
Generally, those insureds that are eligible to use experience rating are
also eligible to use schedule rating.
Insurance rate regulatory objectives include all of the following,
EXCEPT - CORRECT ANSWER Competitive
Which one of the following statements about the reunderwriting
process is true - CORRECT ANSWER The process is circular and
begins and ends with monitoring activities.
A deteriorating loss ratio led the Vice President of Underwriting at RST
Insurance Company to order reunderwriting of RST property insurance
policies. As part of the process, she ordered a report to analyze results
of smaller segments of the business. This report is a snapshot at a
given point in time that provides data on specific characteristics of
, the policies in the book of business. This report is called a(n) -
CORRECT ANSWER Risk profile.
While reunderwriting its book of commercial property insurance,
Property Insurance Company (PIC) learned that many of the buildings
it insured are covered for far less than their replacement cost.
Property Insurance Company believes the under-valuation may have
been intentional to help the agents get the business. PIC ordered that
upon renewal, each commercial property policy would include a
provision requiring the property to be insured for 90 percent of its
replacement value. If this requirement is not met, the settlement
following a loss will be reduced. The policy provision that PIC will add
to their policies is called a(n) - CORRECT ANSWER Insurance-to-
value provision.
Molly is an underwriter for Stanton Insurance. She is working on an all-
lines renewal with the producer, Dan. While gathering information for
the renewal, Molly notices that the renewal payrolls and sales are
almost 20 percent higher than the expiring policy. Dan confirms that
the company is experiencing some significant growth, but has not
expanded into any new products or territories. He also tells Molly that
the company will be marketing its insurance business this renewal, so
her pricing should be as aggressive as possible.
Molly states that this is an important account to Stanton Insurance
and arranges a meeting with Dan and the loss control representative
on the account. She discusses some deductible and rating plan
options that could help offset some of the premium growth and asks
for Dan's feedback. They also discuss how the loss control
representative could work with the insured during this period of
growth. - CORRECT ANSWER Opening stage
Which one of the following skills/tools helps an underwriter add value
to service provided to customers and insurers? - CORRECT ANSWER
Innovation
An insurance company must have adequate policyholders' surplus if it
wishes to - CORRECT ANSWER Increase its written premium volume.
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