AU 60 Chapter 1 Fundamentals of
Underwriting UPDATED ACTUAL
Questions and CORRECT Answers
Underwriting - CORRECT ANSWER - the process of selecting insureds, pricing coverage,
determining insurance policy terms and conditions, and then monitoring the underwriting
decisions made
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 probability of loss to be the ones most likely to purchase insurance
Policy holders 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 insurer's written premiums to its policyholder's surplus
Underwriting guidelines (underwriting guide) - CORRECT ANSWER - 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 - 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 primary responsible for
implementing the steps in the underwriting process
, Staff underwriter - 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 (or group of insureds) and an insurer
Underwriting policy (underwriting philosophy) - CORRECT ANSWER - a guide to
individual and aggregate policy section that supports an insurer's mission statement
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 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
national association of insurance commissioners (NAIC) - CORRECT ANSWER - an
association of insurance commissioners from the fifty US states, the district of Columbia, and the
Underwriting UPDATED ACTUAL
Questions and CORRECT Answers
Underwriting - CORRECT ANSWER - the process of selecting insureds, pricing coverage,
determining insurance policy terms and conditions, and then monitoring the underwriting
decisions made
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 probability of loss to be the ones most likely to purchase insurance
Policy holders 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 insurer's written premiums to its policyholder's surplus
Underwriting guidelines (underwriting guide) - CORRECT ANSWER - 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 - 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 primary responsible for
implementing the steps in the underwriting process
, Staff underwriter - 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 (or group of insureds) and an insurer
Underwriting policy (underwriting philosophy) - CORRECT ANSWER - a guide to
individual and aggregate policy section that supports an insurer's mission statement
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 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
national association of insurance commissioners (NAIC) - CORRECT ANSWER - an
association of insurance commissioners from the fifty US states, the district of Columbia, and the
