CPCU 520 SIMULATED EXAM QUESTIONS &
ANSWERS
Which one of the following is a part of the solvency core principle of exiting the market
and receivership? Select one:
A. The reported financial results are assessed through the financial examination
process and a determination is made of the insurer's compliance with legal
requirements.
B. The regulatory authority takes preventative and corrective measures to reduce the
impact of risks identified during on-site regulatory monitoring.
C. Insurers are required to maintain reserves and capital at all times and in such forms
so as to provide an adequate margin of safety.
D. Solvency is defined and a receivership scheme established to ensure the payment of
insured obligations of insolvent insurers subject to appropriate restrictions and
limitations. - Answers -D
Benjamin has his home insured with Westfork Mutual under an HO-3 policy for
$100,000. He is the named insured on the policy. There are three other residents of the
home: Maria, Benjamin's mother; Daniel, his nephew; and Cian, a family friend. An
accidental fire causes damage to the home and to personal property of all four
occupants. Benjamin reports the loss to Westfork and Fatima, a claim representative, is
assigned the claim. Which one of the following will most likely be Fatima's principal
concern when analyzing coverage for the loss?
Select one:
A. Whether Maria's, Daniel's, and Cian's property would be covered
B. Whether fire is a covered cause of loss under the H0-3 policy
C. Whether the limit of insurance is sufficient to cover the damage
D. Whether any policy exclusions preclude coverage for the loss - Answers -A
Premium auditor Ralph became concerned about an increase in hazard from the
insured's chemical operations. In an audit Ralph discovered the plant had added a
product that could greatly increase the products liability exposure. Due to the
misclassification of the current loss exposures, the information discovered by Ralph is
most useful to which one of the following insurer functions?
A. Risk control
B. Marketing and sales
C. Claims
D. Underwriting - Answers -Underwriting
All of the following are principal sources of underwriting information, EXCEPT:
Select one:
A. Financial rating services
B. Underwriting authority reports
C. Applications
, D. Producers - Answers -B
Sue, age 35, purchased life insurance from producer Ed who promised her the best rate
possible since she was a non-smoker. Six weeks later Sue learned that Ed sold her twin
sister Deb the same policy providing the same coverage at a lower premium. It appears
that the rates Ed used when selling Sue life insurance were possibly
A. Inadequate.
B. Excessive.
C. Unfairly discriminatory.
D. Fairly discriminatory. - Answers -Unfairly discriminatory
Jancy Insurance Company's CEO Adam is researching Jancy's supporting functional
areas for sources of additional income. He believes that certain services his company
performs could be marketed as a stand-alone product to businesses which are not
policyholders. Which one of the following functional areas provides services that
insurers often market as a stand-alone product?
A. Customer service
B. Risk control
C. Actuarial
D. Special investigation unit - Answers -Risk control
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:$125,000Loss 2:$500,000Loss 3:$850,000
How much will Omega Reinsurer pay for Loss 3? - Answers -450K
Which one of the following is a way in which risk control activities can help insurers
meet their profit goals?
Select one:
A. Eliminating premium audits
B. Improving staff credibility
C. Confirming rating values
D. Providing an additional source of revenue - Answers -D
Which one of the following primary insurers would most likely use a catastrophe risk
exchange as an alternative to traditional reinsurance?
Select one:
A. A primary insurer seeking access to a prearranged line of credit
B. A primary insurer looking for coverage in the event of an industry-wide loss
C. A primary insurer in need of additional capital to expand into a new market
D. A primary insurer with a geographic concentration of loss exposures - Answers -D
Which one of the following statements is correct regarding rate regulation?
Select one:
A. Rates should be high enough to pay all claims and expenses related to those rates.
ANSWERS
Which one of the following is a part of the solvency core principle of exiting the market
and receivership? Select one:
A. The reported financial results are assessed through the financial examination
process and a determination is made of the insurer's compliance with legal
requirements.
B. The regulatory authority takes preventative and corrective measures to reduce the
impact of risks identified during on-site regulatory monitoring.
C. Insurers are required to maintain reserves and capital at all times and in such forms
so as to provide an adequate margin of safety.
D. Solvency is defined and a receivership scheme established to ensure the payment of
insured obligations of insolvent insurers subject to appropriate restrictions and
limitations. - Answers -D
Benjamin has his home insured with Westfork Mutual under an HO-3 policy for
$100,000. He is the named insured on the policy. There are three other residents of the
home: Maria, Benjamin's mother; Daniel, his nephew; and Cian, a family friend. An
accidental fire causes damage to the home and to personal property of all four
occupants. Benjamin reports the loss to Westfork and Fatima, a claim representative, is
assigned the claim. Which one of the following will most likely be Fatima's principal
concern when analyzing coverage for the loss?
Select one:
A. Whether Maria's, Daniel's, and Cian's property would be covered
B. Whether fire is a covered cause of loss under the H0-3 policy
C. Whether the limit of insurance is sufficient to cover the damage
D. Whether any policy exclusions preclude coverage for the loss - Answers -A
Premium auditor Ralph became concerned about an increase in hazard from the
insured's chemical operations. In an audit Ralph discovered the plant had added a
product that could greatly increase the products liability exposure. Due to the
misclassification of the current loss exposures, the information discovered by Ralph is
most useful to which one of the following insurer functions?
A. Risk control
B. Marketing and sales
C. Claims
D. Underwriting - Answers -Underwriting
All of the following are principal sources of underwriting information, EXCEPT:
Select one:
A. Financial rating services
B. Underwriting authority reports
C. Applications
, D. Producers - Answers -B
Sue, age 35, purchased life insurance from producer Ed who promised her the best rate
possible since she was a non-smoker. Six weeks later Sue learned that Ed sold her twin
sister Deb the same policy providing the same coverage at a lower premium. It appears
that the rates Ed used when selling Sue life insurance were possibly
A. Inadequate.
B. Excessive.
C. Unfairly discriminatory.
D. Fairly discriminatory. - Answers -Unfairly discriminatory
Jancy Insurance Company's CEO Adam is researching Jancy's supporting functional
areas for sources of additional income. He believes that certain services his company
performs could be marketed as a stand-alone product to businesses which are not
policyholders. Which one of the following functional areas provides services that
insurers often market as a stand-alone product?
A. Customer service
B. Risk control
C. Actuarial
D. Special investigation unit - Answers -Risk control
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:$125,000Loss 2:$500,000Loss 3:$850,000
How much will Omega Reinsurer pay for Loss 3? - Answers -450K
Which one of the following is a way in which risk control activities can help insurers
meet their profit goals?
Select one:
A. Eliminating premium audits
B. Improving staff credibility
C. Confirming rating values
D. Providing an additional source of revenue - Answers -D
Which one of the following primary insurers would most likely use a catastrophe risk
exchange as an alternative to traditional reinsurance?
Select one:
A. A primary insurer seeking access to a prearranged line of credit
B. A primary insurer looking for coverage in the event of an industry-wide loss
C. A primary insurer in need of additional capital to expand into a new market
D. A primary insurer with a geographic concentration of loss exposures - Answers -D
Which one of the following statements is correct regarding rate regulation?
Select one:
A. Rates should be high enough to pay all claims and expenses related to those rates.
