Interns - AU 60 - Fundamentals of
Underwriting UPDATED ACTUAL Exam
Questions and CORRECT Answers
Book of Business - CORRECT 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 - CORRECT ANSWER - In general, the tendency for people with the
greatest probablity of loss to be the ones most likely to purchase insurance.
Policyholders' surplus - CORRECT ANSWER - Under statutory accounting principles
(SAP), an insurer's total admitted assets minus its total liabilities.
Capacity - CORRECT ANSWER - The amount of business an insurer is able to write,
usually based on a comparison of the insurere's written premiums to its policyhoders' surplus.
Underwriting Guidelines - CORRECT ANSWER - A written manual that communicates an
insurer's underwriting policy and that specifies the attributes of an account that an insurerer 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 primariliy responsible for
implementing the steps in the Undewriting process.
Staff Undewriter - CORRECT ANSWER - Underwriter who is usually located in the home
office and who assists underwriting management with making and implementing underwriting
policy.
, Manuscript policy - CORRECT ANSWER - An insurance policy that is specifically
drafted according to terms negotiated between a specific insured and an insurer.
Underwriting Policy - CORRECT ANSWER - A guide to individual and aggregate policy
selection that supports an insurer's mission statement.
Advisory Organization - CORRECT ANSWER - An independent organization that works
with and on behalf of insurers tha t purchase or subscribe to its services.
Prospective Loss Costs - CORRECT ANSWER - Loss data that are modified by loss
development, trending, and credibility process, 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 Reinsurnace - 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 within the treaty are automatically reinsured
Underwriting Audit - CORRECT ANSWER - A review of Underwriting files to ensure that
individual Underwriters are adhering to underwriting guidelines.
Premium-to-surplus ratio or capacity ratio - CORRECT ANSWER - A capacity ratio that
indicates an insurer's financial strength by relating net written premiums to policyholders'
surplus.
Return on Equity (ROE) - CORRECT ANSWER - A profitablity ratio expressed as a
percentage by dividing a company's net income by its net worth (book value). Depending on the
Underwriting UPDATED ACTUAL Exam
Questions and CORRECT Answers
Book of Business - CORRECT 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 - CORRECT ANSWER - In general, the tendency for people with the
greatest probablity of loss to be the ones most likely to purchase insurance.
Policyholders' surplus - CORRECT ANSWER - Under statutory accounting principles
(SAP), an insurer's total admitted assets minus its total liabilities.
Capacity - CORRECT ANSWER - The amount of business an insurer is able to write,
usually based on a comparison of the insurere's written premiums to its policyhoders' surplus.
Underwriting Guidelines - CORRECT ANSWER - A written manual that communicates an
insurer's underwriting policy and that specifies the attributes of an account that an insurerer 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 primariliy responsible for
implementing the steps in the Undewriting process.
Staff Undewriter - CORRECT ANSWER - Underwriter who is usually located in the home
office and who assists underwriting management with making and implementing underwriting
policy.
, Manuscript policy - CORRECT ANSWER - An insurance policy that is specifically
drafted according to terms negotiated between a specific insured and an insurer.
Underwriting Policy - CORRECT ANSWER - A guide to individual and aggregate policy
selection that supports an insurer's mission statement.
Advisory Organization - CORRECT ANSWER - An independent organization that works
with and on behalf of insurers tha t purchase or subscribe to its services.
Prospective Loss Costs - CORRECT ANSWER - Loss data that are modified by loss
development, trending, and credibility process, 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 Reinsurnace - 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 within the treaty are automatically reinsured
Underwriting Audit - CORRECT ANSWER - A review of Underwriting files to ensure that
individual Underwriters are adhering to underwriting guidelines.
Premium-to-surplus ratio or capacity ratio - CORRECT ANSWER - A capacity ratio that
indicates an insurer's financial strength by relating net written premiums to policyholders'
surplus.
Return on Equity (ROE) - CORRECT ANSWER - A profitablity ratio expressed as a
percentage by dividing a company's net income by its net worth (book value). Depending on the
