ARM 402 UPDATED ACTUAL QUESTIONS
AND CORRECT ANSWERS COMPLETE
STUDY GUIDE
◉ Ceding commission
Answer: Westfork Mutual is experiencing rapid premium growth
and needs to maintain regulatory capacity ratios. Which one of the
following reinsurance features would best help address this
challenge?
◉ Automated system backups after errors
Answer: Westfork Mutual recently implemented several internal
controls. Which one of the following controls would management
classify as a corrective control?
◉ Blockchain
Answer: Which one of the following distributed ledger systems
would best help Metford Factory track the authenticity of
components sourced from multiple suppliers worldwide?
◉ Following form policy
,Answer: An umbrella liability policy that follows the terms and
conditions of the underlying primary insurance policies is known as
a
◉ Through ceding commissions that offset acquisition costs
Answer: Westfork Mutual is writing a significant number of new
homeowners policies in coastal areas. While profitable, the
immediate recognition of policy acquisition expenses is negatively
impacting the company's financial statements. How can reinsurance
help Westfork Mutual offset these upfront expenses?
◉ Retrocession
Answer: Goshen Mutual, a professional reinsurer, has entered into
an agreement with Greatview Insurance to share the risk on several
large commercial accounts. When Goshen Mutual needs to further
distribute its risk exposure, it transfers portions of the reinsured
business to other reinsurers. This practice of a reinsurer
transferring risk to another reinsurer is known as
◉ Administrative control can be centralized more efficiently
Answer: When a multinational company uses nonadmitted
insurance for its international exposures, which one of the following
is a primary advantage?
◉ Definite and measurable
, Answer: Glaston Insurance Agency is considering whether to
underwrite a directors and officers liability policy for Northern
Consolidated. The company has disclosed that several board
members are currently under investigation but cannot provide
details about the nature or timing of the allegations. Which
characteristic of an ideally insurable loss exposure presents the
greatest challenge for Glaston?
◉ The geographic concentration along a fault line could result in
simultaneous losses to multiple locations
Answer: Millstone Insurance has been approached to provide
property coverage for a chain of warehouses owned by Northern
Consolidated. The warehouses are all located along the same fault
line in a seismically active region. Northern Consolidated currently
has no earthquake coverage and no other significant property
exposures. Which one of the following best explains why this
account may not meet the characteristics of an ideally insurable
risk?
◉ Fair market value approach
Answer: Glaston Insurance Agency needs to value its client database
for collateral purposes when seeking financing. The agency
determines the value based on what a willing buyer would pay a
willing seller in an open market transaction. This intellectual
property valuation methodology is called the
AND CORRECT ANSWERS COMPLETE
STUDY GUIDE
◉ Ceding commission
Answer: Westfork Mutual is experiencing rapid premium growth
and needs to maintain regulatory capacity ratios. Which one of the
following reinsurance features would best help address this
challenge?
◉ Automated system backups after errors
Answer: Westfork Mutual recently implemented several internal
controls. Which one of the following controls would management
classify as a corrective control?
◉ Blockchain
Answer: Which one of the following distributed ledger systems
would best help Metford Factory track the authenticity of
components sourced from multiple suppliers worldwide?
◉ Following form policy
,Answer: An umbrella liability policy that follows the terms and
conditions of the underlying primary insurance policies is known as
a
◉ Through ceding commissions that offset acquisition costs
Answer: Westfork Mutual is writing a significant number of new
homeowners policies in coastal areas. While profitable, the
immediate recognition of policy acquisition expenses is negatively
impacting the company's financial statements. How can reinsurance
help Westfork Mutual offset these upfront expenses?
◉ Retrocession
Answer: Goshen Mutual, a professional reinsurer, has entered into
an agreement with Greatview Insurance to share the risk on several
large commercial accounts. When Goshen Mutual needs to further
distribute its risk exposure, it transfers portions of the reinsured
business to other reinsurers. This practice of a reinsurer
transferring risk to another reinsurer is known as
◉ Administrative control can be centralized more efficiently
Answer: When a multinational company uses nonadmitted
insurance for its international exposures, which one of the following
is a primary advantage?
◉ Definite and measurable
, Answer: Glaston Insurance Agency is considering whether to
underwrite a directors and officers liability policy for Northern
Consolidated. The company has disclosed that several board
members are currently under investigation but cannot provide
details about the nature or timing of the allegations. Which
characteristic of an ideally insurable loss exposure presents the
greatest challenge for Glaston?
◉ The geographic concentration along a fault line could result in
simultaneous losses to multiple locations
Answer: Millstone Insurance has been approached to provide
property coverage for a chain of warehouses owned by Northern
Consolidated. The warehouses are all located along the same fault
line in a seismically active region. Northern Consolidated currently
has no earthquake coverage and no other significant property
exposures. Which one of the following best explains why this
account may not meet the characteristics of an ideally insurable
risk?
◉ Fair market value approach
Answer: Glaston Insurance Agency needs to value its client database
for collateral purposes when seeking financing. The agency
determines the value based on what a willing buyer would pay a
willing seller in an open market transaction. This intellectual
property valuation methodology is called the
