AU-60: Commercial Underwriting
Principles Exam Questions with
Accurate Answers
Underwriting ANSWERS The process of selecting insureds, pricing coverage,
determining insurance policy terms and conditions, and then monitoring the underwriting
decisions made.
Book of business ANSWERS 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 ANSWERS In general, the tendency for people with the
greatest probability of loss to be the ones most likely to purchase insurance.
Policyholders surplus ANSWERS Under statutory accounting principles (SAP), an
insurers total admitted assets minus its total liabilities
Ratio Analysis ANSWERS A financial analysis tool used to study the financial
condition of an account; two or more data items from accounting records of a company
are related to one another and the result is compared to results for prior accounting
periods or for similar businesses.
Common-Size Statement ANSWERS A financial statement in which amounts are
reported as a percentage of a base figure
Comparative Financial Statements ANSWERS A financial analysis tool that
provides figures for the current and prior year side by side to enable the report user to
observe variations that might indicate financial deterioration or growth
Capacity ANSWERS 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 (underwriting guide) ANSWERS 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 ANSWERS The scope of decisions that an underwriter can
make without receiving approval from someone at a higher level.
, Line Underwriter ANSWERS Underwriter who is primarily responsible for
implementing the steps in the underwriting process.
Staff underwriter ANSWERS Underwriter who is usually located in the home office
and who assists underwriting management with making and implementing underwriting
policy.
Underwriting activities performed by Line Underwriters ANSWERS -select
insureds
-classify and price accounts
-recommend or provide coverage
-manage a book of business
-support producers and insureds
-coordinate with marketing efforts
Underwriting activities performed by staff underwriters ANSWERS -research the
market
-formulate underwriting policy
-revise underwriting guidelines
-evaluate loss experience
-research and develop coverage forms
-review and revise pricing plans
-arrange treaty reinsurance
-assist others with complex accounts
-conduct underwriting audits
-participate in industry associations
-conduct education and training
manuscript policy ANSWERS an insurance policy that is specifically drafted
according to terms negotiated between a specific insured (or group of insureds) and an
insurer
Underwriting policy (underwriting philosophy) ANSWERS A guide to individual and
aggregate policy selection that supports an insurer's mission statement.
Advisory organization ANSWERS An independent organization that works with
and on behalf of insurers that purchase or subscribe to its services.
Prospective loss costs ANSWERS Loss data that are modified by loss
development, trending, and credibility processes, but without considerations for profit
and expenses.
Loss Development ANSWERS The increase or decrease of incurred losses over
time.
Principles Exam Questions with
Accurate Answers
Underwriting ANSWERS The process of selecting insureds, pricing coverage,
determining insurance policy terms and conditions, and then monitoring the underwriting
decisions made.
Book of business ANSWERS 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 ANSWERS In general, the tendency for people with the
greatest probability of loss to be the ones most likely to purchase insurance.
Policyholders surplus ANSWERS Under statutory accounting principles (SAP), an
insurers total admitted assets minus its total liabilities
Ratio Analysis ANSWERS A financial analysis tool used to study the financial
condition of an account; two or more data items from accounting records of a company
are related to one another and the result is compared to results for prior accounting
periods or for similar businesses.
Common-Size Statement ANSWERS A financial statement in which amounts are
reported as a percentage of a base figure
Comparative Financial Statements ANSWERS A financial analysis tool that
provides figures for the current and prior year side by side to enable the report user to
observe variations that might indicate financial deterioration or growth
Capacity ANSWERS 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 (underwriting guide) ANSWERS 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 ANSWERS The scope of decisions that an underwriter can
make without receiving approval from someone at a higher level.
, Line Underwriter ANSWERS Underwriter who is primarily responsible for
implementing the steps in the underwriting process.
Staff underwriter ANSWERS Underwriter who is usually located in the home office
and who assists underwriting management with making and implementing underwriting
policy.
Underwriting activities performed by Line Underwriters ANSWERS -select
insureds
-classify and price accounts
-recommend or provide coverage
-manage a book of business
-support producers and insureds
-coordinate with marketing efforts
Underwriting activities performed by staff underwriters ANSWERS -research the
market
-formulate underwriting policy
-revise underwriting guidelines
-evaluate loss experience
-research and develop coverage forms
-review and revise pricing plans
-arrange treaty reinsurance
-assist others with complex accounts
-conduct underwriting audits
-participate in industry associations
-conduct education and training
manuscript policy ANSWERS an insurance policy that is specifically drafted
according to terms negotiated between a specific insured (or group of insureds) and an
insurer
Underwriting policy (underwriting philosophy) ANSWERS A guide to individual and
aggregate policy selection that supports an insurer's mission statement.
Advisory organization ANSWERS An independent organization that works with
and on behalf of insurers that purchase or subscribe to its services.
Prospective loss costs ANSWERS Loss data that are modified by loss
development, trending, and credibility processes, but without considerations for profit
and expenses.
Loss Development ANSWERS The increase or decrease of incurred losses over
time.
