CPCU 520 QUESTIONS AND ANSWERS
Which one of the following insurer goals creates a conflict between the profit goal and
customer needs goal? - Answers -Comply with legal requirements
Which one of the following statements is true with regard to the various forms of
ownership of property-casualty insurers? - Answers -State and federal governments
provide insurance for exposures that are significant but not commercially insurable.
Insurer A is a proprietary insurer that acts as an insurance marketplace. Its members
underwrite any insurance or reinsurance purchased, and members are primarily
partnerships or corporations with limited liability. Insurer A members belong to
syndicates and delegate day-to-day operations to the syndicate manager. Insurer A is
which one of the following? - Answers -An insurance exchange
Juan has a poor driving record and has been unable to obtain auto liability coverage
from private insurers. Auto liability coverage is mandatory in his state. Since affordability
is a concern, Juan wants auto liability coverage only. Which one of the following is an
option for Juan to obtain coverage? - Answers -Obtain coverage through his state's
residual market
Insurance pools operate either as a syndicate or through - Answers -Reinsurance.
Due to the possibility of an environmental pollution exposure resulting in extensive
losses, several insurers in a particular state have joined together to insure the exposure.
No single insurer was willing to insure the entire risk. This insurance arrangement is
typical of - Answers -An insurance pool.
Specific measures of an insurer's operational performance are the investment income
ratio, overall operating ratio, and the - Answers -Return on equity ratio.
Consider the following information reported by an insurance company:
Incurred losses $8 million
Incurred Underwriting Expenses $2 million
Incurred Loss Adjustment Expenses $4 million
Net Written Premiums $24 million
Earned Premiums $16 million
Which one of the following is the company's trade basis-combined ratio? - Answers -
.833 (The company's trade basis-combined ratio is .833, which is the loss ratio plus the
expense ratio. This is calculated by: (($8m + $4m) / $16m) + ($2m / $24m).
Which one of the following statements is correct? - Answers -If insurers become
insolvent, future claims might not be paid and the insurance protection already paid for
might become worthless.
, The National Association of Insurance Commissioners (NAIC), has - Answers -No
regulatory authority.
Which one of the following precedes nearly all major insurer insolvencies? - Answers -
Rapid premium growth
Which one of the following statements is correct regarding discrimination and insurance
rating? - Answers -Discrimination is essential to insurance rating.
Which one of the following statements is correct regarding rate regulation? - Answers -
An insurer does not know what its actual expenses will be when a policy is sold.
Which one of the following statements is correct regarding rate regulation? - Answers -
The degree of rate variation among competing insurers can affect whether or not rates
are considered excessive.
Which one of the following statements is correct with regard to the regulation of
insurance policies? - Answers -Legislation might require that certain standard
mandatory policy provisions appear in certain types of insurance policies.
The state regulation of unfair trade practices concerning the business of insurance is
required under the - Answers -McCarran Act.
To prevent insurer insolvency and unfair discrimination against an insurance consumer,
insurance regulators do which one of the following? - Answers -Constrain insurers'
ability to accept, modify, or decline applications for insurance
Which one of the following would likely be indicated by a notation next to a specific
classification in an insurer's underwriting guidelines? - Answers -The need for the
underwriter to get management approval before proceeding
Depending on the type of insurance, insurers use automated underwriting systems to -
Answers -Encode underwriting guidelines.
Which one of the following is determined by a company's underwriting policy? -
Answers -Composition of the insurer's book of business
Which one of the following is a major constraint of underwriting policy? - Answers -
Reinsurance
All of the following statements are true regarding the factors affecting the formation of
an insurer's underwriting policy, EXCEPT: - Answers -The higher an insurer's premium-
to-surplus ratio, the greater its ability to expand premium writings.
Which one of the following insurer goals creates a conflict between the profit goal and
customer needs goal? - Answers -Comply with legal requirements
Which one of the following statements is true with regard to the various forms of
ownership of property-casualty insurers? - Answers -State and federal governments
provide insurance for exposures that are significant but not commercially insurable.
Insurer A is a proprietary insurer that acts as an insurance marketplace. Its members
underwrite any insurance or reinsurance purchased, and members are primarily
partnerships or corporations with limited liability. Insurer A members belong to
syndicates and delegate day-to-day operations to the syndicate manager. Insurer A is
which one of the following? - Answers -An insurance exchange
Juan has a poor driving record and has been unable to obtain auto liability coverage
from private insurers. Auto liability coverage is mandatory in his state. Since affordability
is a concern, Juan wants auto liability coverage only. Which one of the following is an
option for Juan to obtain coverage? - Answers -Obtain coverage through his state's
residual market
Insurance pools operate either as a syndicate or through - Answers -Reinsurance.
Due to the possibility of an environmental pollution exposure resulting in extensive
losses, several insurers in a particular state have joined together to insure the exposure.
No single insurer was willing to insure the entire risk. This insurance arrangement is
typical of - Answers -An insurance pool.
Specific measures of an insurer's operational performance are the investment income
ratio, overall operating ratio, and the - Answers -Return on equity ratio.
Consider the following information reported by an insurance company:
Incurred losses $8 million
Incurred Underwriting Expenses $2 million
Incurred Loss Adjustment Expenses $4 million
Net Written Premiums $24 million
Earned Premiums $16 million
Which one of the following is the company's trade basis-combined ratio? - Answers -
.833 (The company's trade basis-combined ratio is .833, which is the loss ratio plus the
expense ratio. This is calculated by: (($8m + $4m) / $16m) + ($2m / $24m).
Which one of the following statements is correct? - Answers -If insurers become
insolvent, future claims might not be paid and the insurance protection already paid for
might become worthless.
, The National Association of Insurance Commissioners (NAIC), has - Answers -No
regulatory authority.
Which one of the following precedes nearly all major insurer insolvencies? - Answers -
Rapid premium growth
Which one of the following statements is correct regarding discrimination and insurance
rating? - Answers -Discrimination is essential to insurance rating.
Which one of the following statements is correct regarding rate regulation? - Answers -
An insurer does not know what its actual expenses will be when a policy is sold.
Which one of the following statements is correct regarding rate regulation? - Answers -
The degree of rate variation among competing insurers can affect whether or not rates
are considered excessive.
Which one of the following statements is correct with regard to the regulation of
insurance policies? - Answers -Legislation might require that certain standard
mandatory policy provisions appear in certain types of insurance policies.
The state regulation of unfair trade practices concerning the business of insurance is
required under the - Answers -McCarran Act.
To prevent insurer insolvency and unfair discrimination against an insurance consumer,
insurance regulators do which one of the following? - Answers -Constrain insurers'
ability to accept, modify, or decline applications for insurance
Which one of the following would likely be indicated by a notation next to a specific
classification in an insurer's underwriting guidelines? - Answers -The need for the
underwriter to get management approval before proceeding
Depending on the type of insurance, insurers use automated underwriting systems to -
Answers -Encode underwriting guidelines.
Which one of the following is determined by a company's underwriting policy? -
Answers -Composition of the insurer's book of business
Which one of the following is a major constraint of underwriting policy? - Answers -
Reinsurance
All of the following statements are true regarding the factors affecting the formation of
an insurer's underwriting policy, EXCEPT: - Answers -The higher an insurer's premium-
to-surplus ratio, the greater its ability to expand premium writings.
