AU 60 - Chapter 7 UPDATED ACTUAL
Questions and CORRECT Answers
underwriting pricing activities - CORRECT ANSWER - account classification, rating and
application of applicable premium modification plans
exposure unti - CORRECT ANSWER - fundamental measure of the loss exposure
assumed by an insurer
premium base - CORRECT ANSWER - unit in which the exposure is measured, such as
gross sales or payroll
homogenous - CORRECT ANSWER - units of exposure that face approximately the same
expected frequency and severity of losses
independence - CORRECT ANSWER - a situation in which the occurrence of one event
has no effect on the likelihood of the occurrence of any other event
ideally insurable loss exposures - CORRECT ANSWER - 1. pure not speculative risk
2. subject to accidental loss from the insured's standpoint
3. subject to losses that are definite in time and that are measureable
4. one of a large number of similar but independent exposures
5. not subject to a loss that would simultaneously affect many other loss exposures
6. economically feasible to insure
amount subject - CORRECT ANSWER - total value exposed to loss at any one location
from any one event
reinsurance - CORRECT ANSWER - the transfer of insurance risk from one insurer to
another through a contractual agreement under which one insurer (the reinsurer) agrees in return
, for a reinsurance premium to indemnify another insurer from some or all of the financial
consequences of certain loss exposures covered by the primary's insurance policies
rate regulation three objectives - CORRECT ANSWER - 1. rates are adequate (mos
important)
2. rate are not excessive
3. rates are not unfairly discriminatory
loss costs - CORRECT ANSWER - the portion of the rate that covers projected claim
payments and loss adjusting expenses
availability - CORRECT ANSWER - a social goal of insurance that states that insurance is
accessible to those who want or need it
affordability - CORRECT ANSWER - social goal of insurance ceiling placed on rates so
people can purchase it (inner city example)
simplicity - CORRECT ANSWER - social goal of insurance stating rate must be
reasonably simple to develop and modify
stability - CORRECT ANSWER - social goal of insurance stating rates should remain firm
and change only when underlying costs have changed substantially
credibility factor - CORRECT ANSWER - factor applied in ratemaking to adjust for the
predictive value of loss data and used to minimize the variations in the rates that result from
purely chance variations in losses
Components of rate - CORRECT ANSWER - 1. an amount needed to pay future claims
and loss adjustment expenses (prospective loss costs)
2. an amount needed to pay future expenses, such as acquisition expenses, overhead and
premium taxes (expense provision)
Questions and CORRECT Answers
underwriting pricing activities - CORRECT ANSWER - account classification, rating and
application of applicable premium modification plans
exposure unti - CORRECT ANSWER - fundamental measure of the loss exposure
assumed by an insurer
premium base - CORRECT ANSWER - unit in which the exposure is measured, such as
gross sales or payroll
homogenous - CORRECT ANSWER - units of exposure that face approximately the same
expected frequency and severity of losses
independence - CORRECT ANSWER - a situation in which the occurrence of one event
has no effect on the likelihood of the occurrence of any other event
ideally insurable loss exposures - CORRECT ANSWER - 1. pure not speculative risk
2. subject to accidental loss from the insured's standpoint
3. subject to losses that are definite in time and that are measureable
4. one of a large number of similar but independent exposures
5. not subject to a loss that would simultaneously affect many other loss exposures
6. economically feasible to insure
amount subject - CORRECT ANSWER - total value exposed to loss at any one location
from any one event
reinsurance - CORRECT ANSWER - the transfer of insurance risk from one insurer to
another through a contractual agreement under which one insurer (the reinsurer) agrees in return
, for a reinsurance premium to indemnify another insurer from some or all of the financial
consequences of certain loss exposures covered by the primary's insurance policies
rate regulation three objectives - CORRECT ANSWER - 1. rates are adequate (mos
important)
2. rate are not excessive
3. rates are not unfairly discriminatory
loss costs - CORRECT ANSWER - the portion of the rate that covers projected claim
payments and loss adjusting expenses
availability - CORRECT ANSWER - a social goal of insurance that states that insurance is
accessible to those who want or need it
affordability - CORRECT ANSWER - social goal of insurance ceiling placed on rates so
people can purchase it (inner city example)
simplicity - CORRECT ANSWER - social goal of insurance stating rate must be
reasonably simple to develop and modify
stability - CORRECT ANSWER - social goal of insurance stating rates should remain firm
and change only when underlying costs have changed substantially
credibility factor - CORRECT ANSWER - factor applied in ratemaking to adjust for the
predictive value of loss data and used to minimize the variations in the rates that result from
purely chance variations in losses
Components of rate - CORRECT ANSWER - 1. an amount needed to pay future claims
and loss adjustment expenses (prospective loss costs)
2. an amount needed to pay future expenses, such as acquisition expenses, overhead and
premium taxes (expense provision)
