CPCU 520 Practice Exam 1 Questions With Complete
Solutions
A number of unique factors shape the insurance marketplace.
Which one of the following factors is most likely to lead to
insurer insolvency, withdrawal from certain geographic markets,
and reinsurance shortages?
Select one:
A. Unanticipated catastrophic losses
B. Economic inflation
C. Regulatory controls
D. Shifts in the underwriting cycle Correct Answers A.
Unanticipated catastrophic losses
A primary insurer is able to obtain surplus relief through
reinsurance by
Select one:
A. Obtaining underwriting advice from a reinsurer to increase
underwriting profit.
B. Receiving ceding commissions to offset policy acquisition
expenses.
C. Minimizing fluctuations in retained losses from year to year.
D. Reducing large line capacity to minimize the ratio of net
written premium to policyholders' surplus. Correct Answers B.
Receiving ceding commissions to offset policy acquisition
expenses.
,All of the following are challenges that an insurer may face that
can hinder a complete alignment of information technology (IT)
and business strategies, EXCEPT:
Select one:
A. Changing IT or business metrics
B. An overly complex IT infrastructure
C. IT professionals assured of their job security
D. IT operating as a separate unit Correct Answers C. IT
professionals assured of their job security
All of the following explain when the use of independent
adjusters might be advantageous, EXCEPT:
Select one:
A. Insurers may use independent adjusters for specific types of
losses, for example, aircraft accidents, in which specialized
expertise is required to settle the claim.
B. The insured may retain an independent adjuster after
becoming dissatisfied with the pace of negotiations with the
insurer.
C. In the case of a catastrophic loss such as a hurricane, an
insurer may not have sufficient staff to manage the claim
volume and may temporarily depend upon independent adjusters
to handle the excess.
D. In some areas it is not economically feasible to set up remote
claim offices and in these areas insurers may depend on
independent adjusters to handle their insureds' losses. Correct
Answers B. The insured may retain an independent adjuster
after becoming dissatisfied with the pace of negotiations with
the insurer.
,Allied Insurer has a $450,000 xs $150,000 per risk excess of
loss reinsurance treaty with Omega Reinsurer. An insured with a
limit of $1,000,000 sustains the following losses:
Loss 1: $125,000 Loss 2: $500,000 Loss 3: $850,000
How much will Omega Reinsurer pay for Loss 1?
Select one:
A. $0
B. $31,250
C. $56,250
D. $125,000 Correct Answers A. $0
125,000 is below 150,000 so Omega Reinsurer will pay $0 for
Loss 1.
An applicant for commercial property insurance is found
unacceptable by an underwriter due to the nature of its
operations and the construction of the building it occupies. If the
applicant installs an automatic fire-extinguishing sprinkler
system, the underwriter will approve the application. This type
of underwriting modification is known as
Select one:
A. Changing insurance rates, rating plans, or policy limits.
B. Requiring risk control measures.
C. Using facultative reinsurance.
D. Amending the policy terms and conditions. Correct Answers
B. Requiring risk control measures
An earned exposure unit is an exposure unit
, Select one:
A. For which the insurer has provided a full year of coverage.
B. For which a claim has been paid.
C. For which the insurer has earned a profit.
D. For which premium has been paid. Correct Answers A. For
which the insurer has provided a full year of coverage.
An important aspect of acknowledging a claimant's bodily injury
liability claim, upon first contact, is to try to obtain information
on the
Select one:
A. Claimant's accident history.
B. Claimant's medical history.
C. Claimant's sources of additional income.
D. Nature and extent of the injury. Correct Answers D. Nature
and extent of the injury.
An insurer that targets large middle-market and national
accounts would most likely use which one of the following
distribution systems?
Select one:
A. Direct
B. Broker
C. Exclusive agent
D. Internet Correct Answers B. Broker
An underwriter receives a renewal application for a property
quote from his producer. The applicant has had a series of small
Solutions
A number of unique factors shape the insurance marketplace.
Which one of the following factors is most likely to lead to
insurer insolvency, withdrawal from certain geographic markets,
and reinsurance shortages?
Select one:
A. Unanticipated catastrophic losses
B. Economic inflation
C. Regulatory controls
D. Shifts in the underwriting cycle Correct Answers A.
Unanticipated catastrophic losses
A primary insurer is able to obtain surplus relief through
reinsurance by
Select one:
A. Obtaining underwriting advice from a reinsurer to increase
underwriting profit.
B. Receiving ceding commissions to offset policy acquisition
expenses.
C. Minimizing fluctuations in retained losses from year to year.
D. Reducing large line capacity to minimize the ratio of net
written premium to policyholders' surplus. Correct Answers B.
Receiving ceding commissions to offset policy acquisition
expenses.
,All of the following are challenges that an insurer may face that
can hinder a complete alignment of information technology (IT)
and business strategies, EXCEPT:
Select one:
A. Changing IT or business metrics
B. An overly complex IT infrastructure
C. IT professionals assured of their job security
D. IT operating as a separate unit Correct Answers C. IT
professionals assured of their job security
All of the following explain when the use of independent
adjusters might be advantageous, EXCEPT:
Select one:
A. Insurers may use independent adjusters for specific types of
losses, for example, aircraft accidents, in which specialized
expertise is required to settle the claim.
B. The insured may retain an independent adjuster after
becoming dissatisfied with the pace of negotiations with the
insurer.
C. In the case of a catastrophic loss such as a hurricane, an
insurer may not have sufficient staff to manage the claim
volume and may temporarily depend upon independent adjusters
to handle the excess.
D. In some areas it is not economically feasible to set up remote
claim offices and in these areas insurers may depend on
independent adjusters to handle their insureds' losses. Correct
Answers B. The insured may retain an independent adjuster
after becoming dissatisfied with the pace of negotiations with
the insurer.
,Allied Insurer has a $450,000 xs $150,000 per risk excess of
loss reinsurance treaty with Omega Reinsurer. An insured with a
limit of $1,000,000 sustains the following losses:
Loss 1: $125,000 Loss 2: $500,000 Loss 3: $850,000
How much will Omega Reinsurer pay for Loss 1?
Select one:
A. $0
B. $31,250
C. $56,250
D. $125,000 Correct Answers A. $0
125,000 is below 150,000 so Omega Reinsurer will pay $0 for
Loss 1.
An applicant for commercial property insurance is found
unacceptable by an underwriter due to the nature of its
operations and the construction of the building it occupies. If the
applicant installs an automatic fire-extinguishing sprinkler
system, the underwriter will approve the application. This type
of underwriting modification is known as
Select one:
A. Changing insurance rates, rating plans, or policy limits.
B. Requiring risk control measures.
C. Using facultative reinsurance.
D. Amending the policy terms and conditions. Correct Answers
B. Requiring risk control measures
An earned exposure unit is an exposure unit
, Select one:
A. For which the insurer has provided a full year of coverage.
B. For which a claim has been paid.
C. For which the insurer has earned a profit.
D. For which premium has been paid. Correct Answers A. For
which the insurer has provided a full year of coverage.
An important aspect of acknowledging a claimant's bodily injury
liability claim, upon first contact, is to try to obtain information
on the
Select one:
A. Claimant's accident history.
B. Claimant's medical history.
C. Claimant's sources of additional income.
D. Nature and extent of the injury. Correct Answers D. Nature
and extent of the injury.
An insurer that targets large middle-market and national
accounts would most likely use which one of the following
distribution systems?
Select one:
A. Direct
B. Broker
C. Exclusive agent
D. Internet Correct Answers B. Broker
An underwriter receives a renewal application for a property
quote from his producer. The applicant has had a series of small
