AU 60 - CHAPTER 1 UPDATED ACTUAL QUESTIONS
AND CORRECT ANSWERS
Question:
1. adverse selection
Answer:
the tendency for people with the greatest probability of loss to be the ones most
likely to purchase insurance
Question:
2. underwriting function serves these purposes
Answer:
guarding against adverse selection, ensuring adequate policyholders surplus, and
enforcing underwriting guidelines
Question:
3. policyholders surplus
Answer:
under statutory accounting principles (SAP), an insurer's total admitted assets
minus its total liabilities
Question:
4. capacity
Answer:
amount of business an insurer is able to write, usually based on a comparison of
the insurer's written premiums to its policyholders surplus
Question:
5. underwriting guidelines
Answer:
a written manual that communications an insurer's underwriting policies and that
specifies the attributes of an account that an insurer is willing to insure
Question:
6. underwriting authority
Answer:
the scope of decisions that an underwriter can make without receiving approval
from someone at a higher level
, Question:
7. line underwriter
Answer:
underwriter who is primarily responsible for implementing the steps in the
underwriting process / work directly with producers and applicants
Question:
8. staff underwriter
Answer:
underwriter who is usually located in the home office and who assists
underwriting management with making and implementing underwriting policy
Question:
9. effective account selection (4)
Answer:
1. avoid adverse selection 2. charging adequate premium 3. selecting better-than-
average accounts 4. rationing an insurer's available capacity to obtain an optimum
spread of loss exposures by location, class, size of risk, and line of business
Question:
10. manuscript policy
Answer:
an insurance policy that is specifically drafted according to terms negotiated
between a specific insured (or group of insureds) and an insurer
Question:
11. underwriting policy
Answer:
translates an insurer's mission and goals into specific strategies that, in turn,
determine the composition of the insurer's book of business
Question:
12. 3 types of markets
Answer:
standard market (average-better than average)
non-standard market (higher risk applications)
specialty market (accounts that have unique needs)
AND CORRECT ANSWERS
Question:
1. adverse selection
Answer:
the tendency for people with the greatest probability of loss to be the ones most
likely to purchase insurance
Question:
2. underwriting function serves these purposes
Answer:
guarding against adverse selection, ensuring adequate policyholders surplus, and
enforcing underwriting guidelines
Question:
3. policyholders surplus
Answer:
under statutory accounting principles (SAP), an insurer's total admitted assets
minus its total liabilities
Question:
4. capacity
Answer:
amount of business an insurer is able to write, usually based on a comparison of
the insurer's written premiums to its policyholders surplus
Question:
5. underwriting guidelines
Answer:
a written manual that communications an insurer's underwriting policies and that
specifies the attributes of an account that an insurer is willing to insure
Question:
6. underwriting authority
Answer:
the scope of decisions that an underwriter can make without receiving approval
from someone at a higher level
, Question:
7. line underwriter
Answer:
underwriter who is primarily responsible for implementing the steps in the
underwriting process / work directly with producers and applicants
Question:
8. staff underwriter
Answer:
underwriter who is usually located in the home office and who assists
underwriting management with making and implementing underwriting policy
Question:
9. effective account selection (4)
Answer:
1. avoid adverse selection 2. charging adequate premium 3. selecting better-than-
average accounts 4. rationing an insurer's available capacity to obtain an optimum
spread of loss exposures by location, class, size of risk, and line of business
Question:
10. manuscript policy
Answer:
an insurance policy that is specifically drafted according to terms negotiated
between a specific insured (or group of insureds) and an insurer
Question:
11. underwriting policy
Answer:
translates an insurer's mission and goals into specific strategies that, in turn,
determine the composition of the insurer's book of business
Question:
12. 3 types of markets
Answer:
standard market (average-better than average)
non-standard market (higher risk applications)
specialty market (accounts that have unique needs)
