CPCU 520 - All chapters Exam Questions and Answers Already Passed Latest Update 2025-
2026
Chapter 1 - Answers
Proprietary insurers - Answers Insurer formed for the purpose of earning a profit for its owners.
Mutual insurer - Answers An insurer owned by its policyholders and incorporated to provide
insurance for them.
Reciprocal Insurance Exchange (interinsurance exchange) - Answers Insurer owned by
policyholders, formed as unincorporated association to provide insurance to members (called
subscribers), and managed by an attorney-in-fact. Members agree to mutually insure each other,
with profits and losses shared in proportion to amount of insurance purchased from the
exchange by that owner.
Fair Access to Insurance Requirements (FAIR) plans - Answers An insurance pool through which
private insurers collectively address an unmet need for property insurance on urban properties,
especially those susceptible to loss by riot or civil commotion.
Residual Market - Answers The term referring collectively to insurers and other organizations
that make insurance available through a shared risk mechanism to those who cannot obtain
coverage in the admitted market.
Surplus lines broker - Answers A person or firm that places business with insurers not licensed
(nonadmitted) in the state in which the transaction occurs but that is permitted to write
insurance because coverage is not available through standard market insurers.
Independent agency and brokerage marketing system - Answers An insurance marketing
system under which producers (agents or brokers) who are independent contractors, sell
insurance, usually as representatives of several unrelated insurers.
Direct writer marketing system - Answers An insurance marketing system that uses sales
agents (or sales representatives) who are direct employees of the insurer.
Exclusive marketing system - Answers An insurance marketing system under which agents
contract to sell insurance exclusively for one insurer (or for an associated group of insurers).
Distribution channel - Answers The channel used by the producer of a product or service to
transfer that product or service to the ultimate customer.
Probable maximum loss (PML) - Answers The largest loss that an insured is likely to sustain.
Underwriting - Answers The process of selecting insureds, pricing coverage, determining
insurance policy terms and conditions, and then monitoring the underwriting decisions made.
Book of business - Answers 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.
Underwriting guidelines (Underwriting guide) - Answers 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.
Adverse selection - Answers In general, the tendency for people with the greatest probability of
loss to be the ones most likely to purchase insurance.
Chapter 2 - Answers
National Association of Insurance Commissioners (NAIC) - Answers An association of
insurance commissioners from the fifty U.S. states, the District of Columbia, and the five U.S.
territories and possessions, whose purpose is to coordinate insurance regulation activities
among various state insurance departments.
Model law - Answers A document drafted by NAIC, in a style similar to a state statute, that
reflects the NAIC's proposed solution to a given problem or issue and provides a common basis
to the states for drafting laws that affect the insurance industry. Any state may choose to adopt
the bill or adopt it with modifications.
Model regulation - Answers A draft regulation that may be implemented by a state insurance
department if the model law is passed.
Domestic insurer - Answers An insurer doing business in the jurisdiction in which it is
incorporated.
Foreign insurer - Answers An insurer licensed to operate in a state but incorporated in another
state.
Alien insurer - Answers An insurer domiciled in a country other than the United States.
Capital stock - Answers A balance sheet value that represents the amount of funds that a
corporation's stockholders have contributed through the purchase of stock.
Paid-in surplus - Answers The amount stockholders paid in excess of the par value of the stock.
Reciprocal insurer - Answers An insurer owned by its policyholders, formed as an
unincorporated association for the purpose of providing insurance coverage to its members
(called subscribers), and managed by an attorney-in-fact. Members agree to mutually insure
each other, and they share profits and losses in the same proportion as the amount of
insurance purchased from the exchange by that member.
Insolvency - Answers A situation in which an entity's current liabilities (as opposed to its total
liabilities) exceed its current assets.
Guaranty fund - Answers A state-established fund that provides a system for the payment of
, some of the unpaid claims of insolvent insurers licensed in that state, generally funded by
assessments collected from all insurers licensed in the state.
Good-faith claim handling - Answers The manner of handling claims that requires an insurer to
give consideration to the insured's interests that is at least equal to the consideration it gives its
own interests.
Bad faith (outrage) - Answers A breach of the duty of good faith and fair dealing.
Mortgagor - Answers The person or organization that borrows money from a mortgagee to
finance the purchase of real property.
Advisory organization - Answers An independent organization that works with and on behalf of
insurers that purchase or subscribe to its services.
Prospective loss costs - Answers Loss data that are modified by loss development, trending,
and credibility processes, but without considerations for profit and expenses.
Chapter 3 - Answers
Captive insurer, or captive - Answers A subsidiary formed to insure the loss exposures of its
parent company and the parent's affiliates.
Risk retention group - Answers A group captive formed under the requirements of the Liability
Risk Retention Act of 1986 to insure the parent organizations.
Market intelligence - Answers Information gathered and analyzed regarding a company's
markets to improve competitive decision-making.
Underwriting cycle - Answers A cyclical pattern of insurance pricing in which a soft market (low
rates, relaxed underwriting, and underwriting losses) is eventually followed by a hard market
(high rates, restrictive underwriting, and underwriting gains) before the pattern again repeats
itself.
Focus group - Answers A small group of customers or potential customers brought together to
provide opinions about a specific product, service, need, or other issue.
Predictive analytics - Answers Statistical and analytical techniques used to develop models that
predict future events or behaviors.
Market segmentation - Answers The process of identifying and dividing the groups within a
market that share needs and characteristics and that will respond similarly to a marketing
action.
Target marketing - Answers Focusing marketing efforts on a specific group of consumers.
Niche marketing - Answers A type of marketing that focuses on specific types of buyers who
2026
Chapter 1 - Answers
Proprietary insurers - Answers Insurer formed for the purpose of earning a profit for its owners.
Mutual insurer - Answers An insurer owned by its policyholders and incorporated to provide
insurance for them.
Reciprocal Insurance Exchange (interinsurance exchange) - Answers Insurer owned by
policyholders, formed as unincorporated association to provide insurance to members (called
subscribers), and managed by an attorney-in-fact. Members agree to mutually insure each other,
with profits and losses shared in proportion to amount of insurance purchased from the
exchange by that owner.
Fair Access to Insurance Requirements (FAIR) plans - Answers An insurance pool through which
private insurers collectively address an unmet need for property insurance on urban properties,
especially those susceptible to loss by riot or civil commotion.
Residual Market - Answers The term referring collectively to insurers and other organizations
that make insurance available through a shared risk mechanism to those who cannot obtain
coverage in the admitted market.
Surplus lines broker - Answers A person or firm that places business with insurers not licensed
(nonadmitted) in the state in which the transaction occurs but that is permitted to write
insurance because coverage is not available through standard market insurers.
Independent agency and brokerage marketing system - Answers An insurance marketing
system under which producers (agents or brokers) who are independent contractors, sell
insurance, usually as representatives of several unrelated insurers.
Direct writer marketing system - Answers An insurance marketing system that uses sales
agents (or sales representatives) who are direct employees of the insurer.
Exclusive marketing system - Answers An insurance marketing system under which agents
contract to sell insurance exclusively for one insurer (or for an associated group of insurers).
Distribution channel - Answers The channel used by the producer of a product or service to
transfer that product or service to the ultimate customer.
Probable maximum loss (PML) - Answers The largest loss that an insured is likely to sustain.
Underwriting - Answers The process of selecting insureds, pricing coverage, determining
insurance policy terms and conditions, and then monitoring the underwriting decisions made.
Book of business - Answers 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.
Underwriting guidelines (Underwriting guide) - Answers 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.
Adverse selection - Answers In general, the tendency for people with the greatest probability of
loss to be the ones most likely to purchase insurance.
Chapter 2 - Answers
National Association of Insurance Commissioners (NAIC) - Answers An association of
insurance commissioners from the fifty U.S. states, the District of Columbia, and the five U.S.
territories and possessions, whose purpose is to coordinate insurance regulation activities
among various state insurance departments.
Model law - Answers A document drafted by NAIC, in a style similar to a state statute, that
reflects the NAIC's proposed solution to a given problem or issue and provides a common basis
to the states for drafting laws that affect the insurance industry. Any state may choose to adopt
the bill or adopt it with modifications.
Model regulation - Answers A draft regulation that may be implemented by a state insurance
department if the model law is passed.
Domestic insurer - Answers An insurer doing business in the jurisdiction in which it is
incorporated.
Foreign insurer - Answers An insurer licensed to operate in a state but incorporated in another
state.
Alien insurer - Answers An insurer domiciled in a country other than the United States.
Capital stock - Answers A balance sheet value that represents the amount of funds that a
corporation's stockholders have contributed through the purchase of stock.
Paid-in surplus - Answers The amount stockholders paid in excess of the par value of the stock.
Reciprocal insurer - Answers An insurer owned by its policyholders, formed as an
unincorporated association for the purpose of providing insurance coverage to its members
(called subscribers), and managed by an attorney-in-fact. Members agree to mutually insure
each other, and they share profits and losses in the same proportion as the amount of
insurance purchased from the exchange by that member.
Insolvency - Answers A situation in which an entity's current liabilities (as opposed to its total
liabilities) exceed its current assets.
Guaranty fund - Answers A state-established fund that provides a system for the payment of
, some of the unpaid claims of insolvent insurers licensed in that state, generally funded by
assessments collected from all insurers licensed in the state.
Good-faith claim handling - Answers The manner of handling claims that requires an insurer to
give consideration to the insured's interests that is at least equal to the consideration it gives its
own interests.
Bad faith (outrage) - Answers A breach of the duty of good faith and fair dealing.
Mortgagor - Answers The person or organization that borrows money from a mortgagee to
finance the purchase of real property.
Advisory organization - Answers An independent organization that works with and on behalf of
insurers that purchase or subscribe to its services.
Prospective loss costs - Answers Loss data that are modified by loss development, trending,
and credibility processes, but without considerations for profit and expenses.
Chapter 3 - Answers
Captive insurer, or captive - Answers A subsidiary formed to insure the loss exposures of its
parent company and the parent's affiliates.
Risk retention group - Answers A group captive formed under the requirements of the Liability
Risk Retention Act of 1986 to insure the parent organizations.
Market intelligence - Answers Information gathered and analyzed regarding a company's
markets to improve competitive decision-making.
Underwriting cycle - Answers A cyclical pattern of insurance pricing in which a soft market (low
rates, relaxed underwriting, and underwriting losses) is eventually followed by a hard market
(high rates, restrictive underwriting, and underwriting gains) before the pattern again repeats
itself.
Focus group - Answers A small group of customers or potential customers brought together to
provide opinions about a specific product, service, need, or other issue.
Predictive analytics - Answers Statistical and analytical techniques used to develop models that
predict future events or behaviors.
Market segmentation - Answers The process of identifying and dividing the groups within a
market that share needs and characteristics and that will respond similarly to a marketing
action.
Target marketing - Answers Focusing marketing efforts on a specific group of consumers.
Niche marketing - Answers A type of marketing that focuses on specific types of buyers who
