AU 60 MISSED PRACTICE TEST EXAM FINAL
SCRIPT 2026 COMPLETE SOLUTION SET
◉ Insurers sometimes use composite rating as an administrative
convenience. Composite rating
Choose one answer.
A. Adjusts an insured's premium based on its past loss experience.
B. Converts several exposures to a single rate and a single rating
basis.
C. Requires insured's to retain more risk and pay for losses as they
occur.
D. Gives a portion on the producer's commission to the insured as
incentive to purchase the account. Answer: B. Converts several
exposures to a single rate and a single rating basis.
◉ Liability insurance coverage is provided at various limits of
coverage. Which one of the following statements is true regarding
charges to increase limits above the basic limit?
Choose one answer.
,A. Higher limits can require a portion of the coverage to be
reinsured, and the additional expense must be included in the rate.
B. Charges to increase liability limits should not exceed 100 percent
of the charge for basic coverage limits.
C. Loss severity increases uniformly with increased coverage limits,
and must be priced accordingly.
D. There is less variability of losses in higher coverage layers than for
the basic limit losses, allowing more credible pricing for higher
limits. Answer: A. Higher limits can require a portion of the coverage
to be reinsured, and the additional expense must be included in the
rate.
◉ Given the following data and using the pure premium ratemaking
method, calculate the insurance rate (rounded).
Incurred losses $750,000
Earned exposure units 12,500
Fixed expenses per exposure unit $15
Profit and contingencies factor 4%
Choose one answer.
A. $58
,B. $63
C. $78
D. $187 Answer: C. $78
The insurance rate is $78. The pure premium is $750,000/12,500 =
$60. Then the insurance rate = ($60+$15) / (1-0.04) = 78
◉ Rating manuals used by underwriters and underwriting
technicians for individual account pricing often use the term
exposure basis interchangeably with
Choose one answer.
A. Rating units.
B. Risk base.
C. Premium base.
D. Risk denomination. Answer: C. Premium base.
, ◉ Ike, as an underwriter for IIA Insurance Company, knew his rates
needed to include loss expenses, as well as profits and
contingencies. Ike also had to pay premium taxes, general expenses
and licenses and fees paid to government, regulatory, and advisory
organizations. These expenses are generally included in ratemaking
as
Choose one answer.
A. The expense provision.
B. The pure premium.
C. The loss adjustment expenses.
D. Allocated expenses. Answer: A. The expense provision.
◉ The DuPont identity allows analysis of ROA by breaking it into
component parts. Under this method, the component parts of ROA
are
Choose one answer.
A. Return on equity and asset turnover.
SCRIPT 2026 COMPLETE SOLUTION SET
◉ Insurers sometimes use composite rating as an administrative
convenience. Composite rating
Choose one answer.
A. Adjusts an insured's premium based on its past loss experience.
B. Converts several exposures to a single rate and a single rating
basis.
C. Requires insured's to retain more risk and pay for losses as they
occur.
D. Gives a portion on the producer's commission to the insured as
incentive to purchase the account. Answer: B. Converts several
exposures to a single rate and a single rating basis.
◉ Liability insurance coverage is provided at various limits of
coverage. Which one of the following statements is true regarding
charges to increase limits above the basic limit?
Choose one answer.
,A. Higher limits can require a portion of the coverage to be
reinsured, and the additional expense must be included in the rate.
B. Charges to increase liability limits should not exceed 100 percent
of the charge for basic coverage limits.
C. Loss severity increases uniformly with increased coverage limits,
and must be priced accordingly.
D. There is less variability of losses in higher coverage layers than for
the basic limit losses, allowing more credible pricing for higher
limits. Answer: A. Higher limits can require a portion of the coverage
to be reinsured, and the additional expense must be included in the
rate.
◉ Given the following data and using the pure premium ratemaking
method, calculate the insurance rate (rounded).
Incurred losses $750,000
Earned exposure units 12,500
Fixed expenses per exposure unit $15
Profit and contingencies factor 4%
Choose one answer.
A. $58
,B. $63
C. $78
D. $187 Answer: C. $78
The insurance rate is $78. The pure premium is $750,000/12,500 =
$60. Then the insurance rate = ($60+$15) / (1-0.04) = 78
◉ Rating manuals used by underwriters and underwriting
technicians for individual account pricing often use the term
exposure basis interchangeably with
Choose one answer.
A. Rating units.
B. Risk base.
C. Premium base.
D. Risk denomination. Answer: C. Premium base.
, ◉ Ike, as an underwriter for IIA Insurance Company, knew his rates
needed to include loss expenses, as well as profits and
contingencies. Ike also had to pay premium taxes, general expenses
and licenses and fees paid to government, regulatory, and advisory
organizations. These expenses are generally included in ratemaking
as
Choose one answer.
A. The expense provision.
B. The pure premium.
C. The loss adjustment expenses.
D. Allocated expenses. Answer: A. The expense provision.
◉ The DuPont identity allows analysis of ROA by breaking it into
component parts. Under this method, the component parts of ROA
are
Choose one answer.
A. Return on equity and asset turnover.
