CPCU 540 COMPREHENSIVE EXAM
QUESTIONS AND CORRECT ANSWERS
STUDY GUIDE
●● The claims representatives at Goshen Insurance use various methods
to establish and review case reserves. Which one of the following
methods of establishing case reserves involves a consensus among
multiple claims representatives?
Available answer optionsSelect only one option
A Roundtable method
B Average value method
C Formula method
D Expert system method
Answer: Rountable Method
●● Adjustments to loss reserves and loss adjustment expense (LAE)
reserves have implications for an insurer's capital. Adjustments that
reduce loss reserves will
Available answer optionsSelect only one option
A Reduce net income and increase policyholders' surplus.
B Increase both net income and policyholders' surplus.
C Increase net income and reduce policyholders' surplus.
D Reduce both net income and policyholders' surplus.
,Answer: Increase both net income and policyholders' surplus.
●● Policyholders' surplus is an insurer's net worth, and equals assets
minus
Answer: Liabilities
●● The ability of an insurer's management team and the diversification
of its business mix are evaluated when A.M. Best is reviewing which
one of the following key rating factors of an insurer?
Available answer optionsSelect only one option
ARating lift/drag
B Operating performance
C Enterprise risk management
D Business profile
Answer: Business Profile
●● State insurance departments monitor the treatment of insureds,
applicants for insurance, and claimants by four operational areas of an
insurer. Discriminating unfairly when selecting loss exposures would be
considered an unfair practice by which one of the following?
Available answer optionsSelect only one option
A Claims
B Underwriting
C Ratemaking
, D Sales and advertising
Answer: Underwriting
●● Capital budgeting manages a corporation's
Available answer optionsSelect only one option
A Insurance purchases.
B Cash inflows.
C Long-term investments.
D Accounts receivable.
Answer: Long-term investments.
●● An insurer with a combined ratio of 90 is earning how many cents of
underwriting profit on every premium dollar?
Answer: 10
●● An investment has an initial cash outflow of $30,000 and a return of
$0 at the end of the first year and $40,000 at the end of the second year.
The required rate of return is 12%. What is the net present value of this
investment? Disregard the effect of depreciation and taxes.
Available answer optionsSelect only one option
A $1,888
B $5,716
C $20,176
QUESTIONS AND CORRECT ANSWERS
STUDY GUIDE
●● The claims representatives at Goshen Insurance use various methods
to establish and review case reserves. Which one of the following
methods of establishing case reserves involves a consensus among
multiple claims representatives?
Available answer optionsSelect only one option
A Roundtable method
B Average value method
C Formula method
D Expert system method
Answer: Rountable Method
●● Adjustments to loss reserves and loss adjustment expense (LAE)
reserves have implications for an insurer's capital. Adjustments that
reduce loss reserves will
Available answer optionsSelect only one option
A Reduce net income and increase policyholders' surplus.
B Increase both net income and policyholders' surplus.
C Increase net income and reduce policyholders' surplus.
D Reduce both net income and policyholders' surplus.
,Answer: Increase both net income and policyholders' surplus.
●● Policyholders' surplus is an insurer's net worth, and equals assets
minus
Answer: Liabilities
●● The ability of an insurer's management team and the diversification
of its business mix are evaluated when A.M. Best is reviewing which
one of the following key rating factors of an insurer?
Available answer optionsSelect only one option
ARating lift/drag
B Operating performance
C Enterprise risk management
D Business profile
Answer: Business Profile
●● State insurance departments monitor the treatment of insureds,
applicants for insurance, and claimants by four operational areas of an
insurer. Discriminating unfairly when selecting loss exposures would be
considered an unfair practice by which one of the following?
Available answer optionsSelect only one option
A Claims
B Underwriting
C Ratemaking
, D Sales and advertising
Answer: Underwriting
●● Capital budgeting manages a corporation's
Available answer optionsSelect only one option
A Insurance purchases.
B Cash inflows.
C Long-term investments.
D Accounts receivable.
Answer: Long-term investments.
●● An insurer with a combined ratio of 90 is earning how many cents of
underwriting profit on every premium dollar?
Answer: 10
●● An investment has an initial cash outflow of $30,000 and a return of
$0 at the end of the first year and $40,000 at the end of the second year.
The required rate of return is 12%. What is the net present value of this
investment? Disregard the effect of depreciation and taxes.
Available answer optionsSelect only one option
A $1,888
B $5,716
C $20,176
