AU 60 - Chapter 1 UPDATED ACTUAL
Questions and CORRECT Answers
adverse selection - CORRECT ANSWER - the tendency for people with the greatest
probability of loss to be the ones most likely to purchase insurance
underwriting function serves these purposes - CORRECT ANSWER - guarding against
adverse selection, ensuring adequate policyholders surplus, and enforcing underwriting
guidelines
policyholders surplus - CORRECT ANSWER - under statutory accounting principles
(SAP), an insurer's total admitted assets minus its total liabilities
capacity - CORRECT ANSWER - 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 - CORRECT ANSWER - a written manual that communications
an insurer's underwriting policies and that specifies the attributes of an account that an insurer is
willing to insure
underwriting authority - CORRECT ANSWER - the scope of decisions that an underwriter
can make without receiving approval from someone at a higher level
line underwriter - CORRECT ANSWER - underwriter who is primarily responsible for
implementing the steps in the underwriting process / work directly with producers and applicants
staff underwriter - CORRECT ANSWER - underwriter who is usually located in the home
office and who assists underwriting management with making and implementing underwriting
policy
effective account selection (4) - CORRECT ANSWER - 1. avoid adverse selection 2.
charging adequate premium 3. selecting better-than-average accounts 4. rationing an insurer's
, available capacity to obtain an optimum spread of loss exposures by location, class, size of risk,
and line of business
manuscript policy - CORRECT 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 - CORRECT ANSWER - translates an insurer's mission and goals into
specific strategies that, in turn, determine the composition of the insurer's book of business
3 types of markets - CORRECT ANSWER - standard market (average-better than average)
non-standard market (higher risk applications)
specialty market (accounts that have unique needs)
advisory organization - CORRECT ANSWER - an independent organization that works
with and on behalf of insurers that purchase or subscribe to its services
prospective loss costs - CORRECT ANSWER - loss data that are modified by loss
development, trending and credibility processes, but without considerations for profit and
expenses
loss development - CORRECT ANSWER - the increase or decrease of incurred losses over
time
trending - CORRECT ANSWER - a statistical technique for analyzing environmental
changes and projecting such changes into the future
treaty reinsurance - CORRECT ANSWER - a reinsurance agreement that covers an entire
class or portfolio of loss exposures and provides that the primary insurer's individual loss
exposures that fall with the treaty are automatically reinsured
Questions and CORRECT Answers
adverse selection - CORRECT ANSWER - the tendency for people with the greatest
probability of loss to be the ones most likely to purchase insurance
underwriting function serves these purposes - CORRECT ANSWER - guarding against
adverse selection, ensuring adequate policyholders surplus, and enforcing underwriting
guidelines
policyholders surplus - CORRECT ANSWER - under statutory accounting principles
(SAP), an insurer's total admitted assets minus its total liabilities
capacity - CORRECT ANSWER - 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 - CORRECT ANSWER - a written manual that communications
an insurer's underwriting policies and that specifies the attributes of an account that an insurer is
willing to insure
underwriting authority - CORRECT ANSWER - the scope of decisions that an underwriter
can make without receiving approval from someone at a higher level
line underwriter - CORRECT ANSWER - underwriter who is primarily responsible for
implementing the steps in the underwriting process / work directly with producers and applicants
staff underwriter - CORRECT ANSWER - underwriter who is usually located in the home
office and who assists underwriting management with making and implementing underwriting
policy
effective account selection (4) - CORRECT ANSWER - 1. avoid adverse selection 2.
charging adequate premium 3. selecting better-than-average accounts 4. rationing an insurer's
, available capacity to obtain an optimum spread of loss exposures by location, class, size of risk,
and line of business
manuscript policy - CORRECT 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 - CORRECT ANSWER - translates an insurer's mission and goals into
specific strategies that, in turn, determine the composition of the insurer's book of business
3 types of markets - CORRECT ANSWER - standard market (average-better than average)
non-standard market (higher risk applications)
specialty market (accounts that have unique needs)
advisory organization - CORRECT ANSWER - an independent organization that works
with and on behalf of insurers that purchase or subscribe to its services
prospective loss costs - CORRECT ANSWER - loss data that are modified by loss
development, trending and credibility processes, but without considerations for profit and
expenses
loss development - CORRECT ANSWER - the increase or decrease of incurred losses over
time
trending - CORRECT ANSWER - a statistical technique for analyzing environmental
changes and projecting such changes into the future
treaty reinsurance - CORRECT ANSWER - a reinsurance agreement that covers an entire
class or portfolio of loss exposures and provides that the primary insurer's individual loss
exposures that fall with the treaty are automatically reinsured
