CPCU 520 Chapter 7 Exam Questions and Answers Fully Solved Latest Version 2025-2026
Data mining - Answers The process of extracting hidden patterns from data that is used in a
wide range of applications for research and fraud detection
Ratemaking - Answers The process insurers use to calculate insurance rates, which are a
premium component
Rate - Answers The price per exposure unit for insurance coverage
Premium - Answers The price of the insurance coverage provided for a specified period
Pure premium - Answers The average amount of money an insurer must charge per exposure
unit in order to be able to cover the total anticipated losses for that line of business
Expense provision - Answers The amount that is included in an insurance rate to cover the
insurer's expenses and that might include loss adjustment expenses but that excludes
investment expenses
Underwriting expenses - Answers Costs incurred by an insurer for operations, taxes, fees, and
the application of new policies
Loss adjustment expense (LAE) - Answers The expense that an insurer incurs to investigate,
defend, and settle claims according to the terms specified in the insurance policy
Allocated loss adjustment expense (ALAE) - Answers The expense an insurer incurs to
investigate, defend, and settle claims that are associated with a specific claim
Unallocated loss adjustment expense (ULAE) - Answers Loss adjustment expense that cannot
be readily associated with a specific claim
Ultimate loss - Answers The final paid amount for all losses in an accident year
Experience period - Answers The period for which all pertinent statistics are collected and
analyzed in the ratemaking process
Investment income - Answers Interest, dividends, and net capital gains received by an insurer
from the insurer's financial assets, minus its investment expenses
Pure premium method - Answers A method for calculating insurance rates using estimates of
future losses and expenses, including a profit and contingencies factor
Judgement ratemaking method - Answers A method for determining insurance rates that relies
heavily on the experience and knowledge of an actuary or an underwriter who makes little or no
use of loss experience data
Loss cost multiplier - Answers A factor that provides for differences in expected loss, individual
Data mining - Answers The process of extracting hidden patterns from data that is used in a
wide range of applications for research and fraud detection
Ratemaking - Answers The process insurers use to calculate insurance rates, which are a
premium component
Rate - Answers The price per exposure unit for insurance coverage
Premium - Answers The price of the insurance coverage provided for a specified period
Pure premium - Answers The average amount of money an insurer must charge per exposure
unit in order to be able to cover the total anticipated losses for that line of business
Expense provision - Answers The amount that is included in an insurance rate to cover the
insurer's expenses and that might include loss adjustment expenses but that excludes
investment expenses
Underwriting expenses - Answers Costs incurred by an insurer for operations, taxes, fees, and
the application of new policies
Loss adjustment expense (LAE) - Answers The expense that an insurer incurs to investigate,
defend, and settle claims according to the terms specified in the insurance policy
Allocated loss adjustment expense (ALAE) - Answers The expense an insurer incurs to
investigate, defend, and settle claims that are associated with a specific claim
Unallocated loss adjustment expense (ULAE) - Answers Loss adjustment expense that cannot
be readily associated with a specific claim
Ultimate loss - Answers The final paid amount for all losses in an accident year
Experience period - Answers The period for which all pertinent statistics are collected and
analyzed in the ratemaking process
Investment income - Answers Interest, dividends, and net capital gains received by an insurer
from the insurer's financial assets, minus its investment expenses
Pure premium method - Answers A method for calculating insurance rates using estimates of
future losses and expenses, including a profit and contingencies factor
Judgement ratemaking method - Answers A method for determining insurance rates that relies
heavily on the experience and knowledge of an actuary or an underwriter who makes little or no
use of loss experience data
Loss cost multiplier - Answers A factor that provides for differences in expected loss, individual
