AU 60 FINAL EXAM UPDATED ACTUAL QUESTIONS
AND CORRECT ANSWERS
Question:
1. The common distinction between field underwriters and
corporate underwriters is that line underwriters
Answer:
Implement the steps in the underwriting process. Corporate underwriters assist
underwriting management with formulating underwriting policy.
Question:
2. Which one of the following statements is correct with
regard to regulation and insurers' operations?
Answer:
Solvency regulation indirectly influences underwriting by limiting new business for
insurers.
Question:
3. Underwriting regulations seek to ensure correct
classification of insureds because
Answer:
Misclassification can result in inadequate premiums and drain an insurer's surplus.
Question:
4. 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?
Answer:
Quicker response
Question:
5. 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?
Answer:
A review of the financial statements helps John to determine XYZ's insurance
needs.
,Question:
6. 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
Answer:
Cost of goods sold reports expenses after an inventory item is sold.
Question:
7. Which one of the following types of analysis helps an
underwriter identify abnormal values reported by an
organization?
Answer:
Vertical analysis
Question:
8. 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,
Answer:
The larger the margin of safety the company possesses to cover its short-term
debts.
Question:
9. Which one of the following ratios indicates the adequacy
of a company's working capital to meet its current
financial obligations?
Answer:
Current ratio
Question:
10. 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
Answer:
Buddy's Burger Hut's Acid-Test Ratio is 1.15. ($50,000 + $5,000 + $2,500) / $50,000 =
1.15
, Question:
11. An organization that considers both key business risks
and opportunities when formulating its business
strategies reflects its commitment to which one of the
following?
Answer:
Enterprise risk management
Question:
12. 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?
Answer:
Subcontractor
Question:
13. Which one of the following sources of underwriting
information provides a hazard index by line of insurance
for the various classifications?
Answer:
Best's Underwriting Guide
Question:
14. 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?
Answer:
Liability
Question:
15. 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
Answer:
Prospective loss costs.
AND CORRECT ANSWERS
Question:
1. The common distinction between field underwriters and
corporate underwriters is that line underwriters
Answer:
Implement the steps in the underwriting process. Corporate underwriters assist
underwriting management with formulating underwriting policy.
Question:
2. Which one of the following statements is correct with
regard to regulation and insurers' operations?
Answer:
Solvency regulation indirectly influences underwriting by limiting new business for
insurers.
Question:
3. Underwriting regulations seek to ensure correct
classification of insureds because
Answer:
Misclassification can result in inadequate premiums and drain an insurer's surplus.
Question:
4. 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?
Answer:
Quicker response
Question:
5. 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?
Answer:
A review of the financial statements helps John to determine XYZ's insurance
needs.
,Question:
6. 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
Answer:
Cost of goods sold reports expenses after an inventory item is sold.
Question:
7. Which one of the following types of analysis helps an
underwriter identify abnormal values reported by an
organization?
Answer:
Vertical analysis
Question:
8. 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,
Answer:
The larger the margin of safety the company possesses to cover its short-term
debts.
Question:
9. Which one of the following ratios indicates the adequacy
of a company's working capital to meet its current
financial obligations?
Answer:
Current ratio
Question:
10. 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
Answer:
Buddy's Burger Hut's Acid-Test Ratio is 1.15. ($50,000 + $5,000 + $2,500) / $50,000 =
1.15
, Question:
11. An organization that considers both key business risks
and opportunities when formulating its business
strategies reflects its commitment to which one of the
following?
Answer:
Enterprise risk management
Question:
12. 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?
Answer:
Subcontractor
Question:
13. Which one of the following sources of underwriting
information provides a hazard index by line of insurance
for the various classifications?
Answer:
Best's Underwriting Guide
Question:
14. 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?
Answer:
Liability
Question:
15. 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
Answer:
Prospective loss costs.
