AU 60 ACTUAL TEST QUESTIONS WITH
COMPLETE ANSWER KEY
●● Book of Business
Answer: A group of policies with a common characteristic, such as
territory or type of coverage, or all policies written by a particular
insurer or agency.
●● Adverse Selection
Answer: In general, the tendency for people with the greatest probability
of loss to be the ones most likely to purchase insurance.
●● Policyholders' Surplus
Answer: Under statutory accounting principles (SAP), an insurer's total
admitted assets minus its total liabilities.
●● Capacity
Answer: The amount of business an insurer is able to write, usually
based on a comparison of the insurer's written premiums to its
policyholders' surplus.
●● Underwriting Guidelines
,Answer: A written manual that communicates an insurer's underwriting
policy and that specifies the attributes of an account that an insurer is
willing to insure.
●● Underwriting Authority
Answer: The scope of decision that an underwriter can make without
receiving approval from someone at a higher level.
●● Line Underwriter
Answer: Underwriter who is primarily responsible for implementing the
steps in the underwriting process.
●● Staff Underwriter
Answer: Underwriter who is usually located in the home office and who
assists underwriting management with making and implementing
underwriting policy.
●● 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
●● Underwriting Policy
,Answer: A guide to individual and aggregate policy selection that
supports an insurer's mission statement.
●● Advisory Organization
Answer: An independent organization that works with and on behalf of
insurers that purchase or subscribe to its services.
●● Prospective Loss Costs
Answer: Loss data that are modified by loss development, trending, and
credibility processes, but without considerations for profit and expenses.
●● Loss Development
Answer: The increase or decrease of incurred losses over time.
●● Trending
Answer: A statistical technique for analyzing environmental changes and
projecting such changes into the future.
●● Premium-to-Surplus Ratio, or Capacity Ratio
Answer: A capacity ratio that indicates an insurer's financial strength by
relating net written premiums to policyholders' surplus
●● Market Conduct Examination
, Answer: An analysis of an insurer's practices in four operational areas:
sales and advertising, underwriting, ratemaking, and claim handling.
●● Expert systems, or knowledge-based systems
Answer: Computer software programs that supplement the underwriting
decision-making process. These systems ask for the information
necessary to make an underwriting decision, ensuring that no
information is overlooked.
●● Information Efficiency
Answer: The balance that underwriters must maintain between the
hazards presented by the account and the information needed to
underwrite it.
●● Counteroffer
Answer: A proposal an offeree makes to an offeror that varies in some
material way from the original offer, resulting in rejection of the original
offer and constituting a new offer.
●● Estimated Loss Potentials
Answer: Rate development factors used for operations with unique
characteristics or for which inadequate statistical experience exists.
Multiplied by loss cost multipliers to develop rates
●● Experience Rating
COMPLETE ANSWER KEY
●● Book of Business
Answer: A group of policies with a common characteristic, such as
territory or type of coverage, or all policies written by a particular
insurer or agency.
●● Adverse Selection
Answer: In general, the tendency for people with the greatest probability
of loss to be the ones most likely to purchase insurance.
●● Policyholders' Surplus
Answer: Under statutory accounting principles (SAP), an insurer's total
admitted assets minus its total liabilities.
●● Capacity
Answer: The amount of business an insurer is able to write, usually
based on a comparison of the insurer's written premiums to its
policyholders' surplus.
●● Underwriting Guidelines
,Answer: A written manual that communicates an insurer's underwriting
policy and that specifies the attributes of an account that an insurer is
willing to insure.
●● Underwriting Authority
Answer: The scope of decision that an underwriter can make without
receiving approval from someone at a higher level.
●● Line Underwriter
Answer: Underwriter who is primarily responsible for implementing the
steps in the underwriting process.
●● Staff Underwriter
Answer: Underwriter who is usually located in the home office and who
assists underwriting management with making and implementing
underwriting policy.
●● 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
●● Underwriting Policy
,Answer: A guide to individual and aggregate policy selection that
supports an insurer's mission statement.
●● Advisory Organization
Answer: An independent organization that works with and on behalf of
insurers that purchase or subscribe to its services.
●● Prospective Loss Costs
Answer: Loss data that are modified by loss development, trending, and
credibility processes, but without considerations for profit and expenses.
●● Loss Development
Answer: The increase or decrease of incurred losses over time.
●● Trending
Answer: A statistical technique for analyzing environmental changes and
projecting such changes into the future.
●● Premium-to-Surplus Ratio, or Capacity Ratio
Answer: A capacity ratio that indicates an insurer's financial strength by
relating net written premiums to policyholders' surplus
●● Market Conduct Examination
, Answer: An analysis of an insurer's practices in four operational areas:
sales and advertising, underwriting, ratemaking, and claim handling.
●● Expert systems, or knowledge-based systems
Answer: Computer software programs that supplement the underwriting
decision-making process. These systems ask for the information
necessary to make an underwriting decision, ensuring that no
information is overlooked.
●● Information Efficiency
Answer: The balance that underwriters must maintain between the
hazards presented by the account and the information needed to
underwrite it.
●● Counteroffer
Answer: A proposal an offeree makes to an offeror that varies in some
material way from the original offer, resulting in rejection of the original
offer and constituting a new offer.
●● Estimated Loss Potentials
Answer: Rate development factors used for operations with unique
characteristics or for which inadequate statistical experience exists.
Multiplied by loss cost multipliers to develop rates
●● Experience Rating
