AU 60 PRACTICE EXAM SET 2026 TESTED
QUESTIONS FULL SOLUTION
◉ Which one of the following statements is correct with regard to
regulation and insurers' operations. Answer: Solvency regulation
indirectly influences underwriting by limiting new business for
insurers.
◉ Underwriting regulations seek to ensure correct classification of
insureds because. Answer: Misclassification can result in inadequate
premiums and drain an insurer's surplus.
◉ The primary benefit of using the services of an independent
contractor who specializes in risk control work to inspect
properties, rather than the insurer's risk control representative?.
Answer: Quicker response
◉ John is a risk management specialist for XYZ Company. John
examines XYZ's financial statements on a quarterly basis. Which one
of the following best describes a reason for this analysis?. Answer: A
review of the financial statements helps John to determine XYZ's
insurance needs.
◉ Cost of goods sold appears on the income statements of
manufacturing and retail entities. Which one of the following
,statements best describes cost of goods sold. Answer: Cost of goods
sold reports expenses after an inventory item is sold.
◉ Which one of the following types of analysis helps an underwriter
identify abnormal values reported by an organization?. Answer:
Vertical analysis
◉ Liquidity ratios are used to determine a company's ability to pay
off its short-term debts. Typically, the higher the value of the ratio,.
Answer: The larger the margin of safety the company possesses to
cover its short-term debts.
◉ Which one of the following ratios indicates the adequacy of a
company's working capital to meet its current financial obligations?.
Answer: Current ratio
◉ The most recent financial statements for Buddy's Burger Hut
reveal the following:
Cash$50,000 Equipment$25,000 Inventory$15,000 Accounts
Receivable$2,500 Cost of Goods Sold$125,000 Marketable
Securities$5,000 Current Liabilities$50,000
Based on this information, Buddy's Burger Hut's Acid-Test Ratio is.
Answer: Buddy's Burger Hut's Acid-Test Ratio is 1.15. ($50,000 +
$5,000 + $2,500) / $50,000 = 1.15
, ◉ An organization that considers both key business risks and
opportunities when formulating its business strategies reflects its
commitment to which one of the following?. Answer: Enterprise risk
management
◉ William is a plumber. He has a contract with a home builder to
install the bathrooms in a new housing development. William will
supply the materials and equipment. He will be paid a fixed fee per
house and must complete the job by an agreed deadline. Which one
of the following best describes William's relationship to the home
builder?. Answer: Subcontractor
◉ Which one of the following sources of underwriting information
provides a hazard index by line of insurance for the various
classifications?. Answer: Best's Underwriting Guide
◉ Jackson is a commercial lines underwriter. When evaluating an
organization's location, one of the factors that he considers is how
susceptible the organization is to social inflation. Social inflation is
typically of greatest concern when underwriting which one of the
following lines of business?. Answer: Liability
◉ To understand why insurers charge a certain premium, the
components must be understood. The amount needed to pay future
claims and loss adjustment expenses is referred to as. Answer:
Prospective loss costs.
QUESTIONS FULL SOLUTION
◉ Which one of the following statements is correct with regard to
regulation and insurers' operations. Answer: Solvency regulation
indirectly influences underwriting by limiting new business for
insurers.
◉ Underwriting regulations seek to ensure correct classification of
insureds because. Answer: Misclassification can result in inadequate
premiums and drain an insurer's surplus.
◉ The primary benefit of using the services of an independent
contractor who specializes in risk control work to inspect
properties, rather than the insurer's risk control representative?.
Answer: Quicker response
◉ John is a risk management specialist for XYZ Company. John
examines XYZ's financial statements on a quarterly basis. Which one
of the following best describes a reason for this analysis?. Answer: A
review of the financial statements helps John to determine XYZ's
insurance needs.
◉ Cost of goods sold appears on the income statements of
manufacturing and retail entities. Which one of the following
,statements best describes cost of goods sold. Answer: Cost of goods
sold reports expenses after an inventory item is sold.
◉ Which one of the following types of analysis helps an underwriter
identify abnormal values reported by an organization?. Answer:
Vertical analysis
◉ Liquidity ratios are used to determine a company's ability to pay
off its short-term debts. Typically, the higher the value of the ratio,.
Answer: The larger the margin of safety the company possesses to
cover its short-term debts.
◉ Which one of the following ratios indicates the adequacy of a
company's working capital to meet its current financial obligations?.
Answer: Current ratio
◉ The most recent financial statements for Buddy's Burger Hut
reveal the following:
Cash$50,000 Equipment$25,000 Inventory$15,000 Accounts
Receivable$2,500 Cost of Goods Sold$125,000 Marketable
Securities$5,000 Current Liabilities$50,000
Based on this information, Buddy's Burger Hut's Acid-Test Ratio is.
Answer: Buddy's Burger Hut's Acid-Test Ratio is 1.15. ($50,000 +
$5,000 + $2,500) / $50,000 = 1.15
, ◉ An organization that considers both key business risks and
opportunities when formulating its business strategies reflects its
commitment to which one of the following?. Answer: Enterprise risk
management
◉ William is a plumber. He has a contract with a home builder to
install the bathrooms in a new housing development. William will
supply the materials and equipment. He will be paid a fixed fee per
house and must complete the job by an agreed deadline. Which one
of the following best describes William's relationship to the home
builder?. Answer: Subcontractor
◉ Which one of the following sources of underwriting information
provides a hazard index by line of insurance for the various
classifications?. Answer: Best's Underwriting Guide
◉ Jackson is a commercial lines underwriter. When evaluating an
organization's location, one of the factors that he considers is how
susceptible the organization is to social inflation. Social inflation is
typically of greatest concern when underwriting which one of the
following lines of business?. Answer: Liability
◉ To understand why insurers charge a certain premium, the
components must be understood. The amount needed to pay future
claims and loss adjustment expenses is referred to as. Answer:
Prospective loss costs.
