AU 60 final exam Latest Edition Question
and Answer | Complete Study Pack | Grade
A+
• Which one of the following statements is correct with regard to regulation and
insurers' operations? -✓✓ Solvency regulation indirectly influences underwriting
by limiting new business for insurers.
• Underwriting regulations seek to ensure correct classification of insureds
because -✓✓ 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? -✓✓ 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? -✓✓ 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 -✓✓ 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? -✓✓ 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, -✓✓ 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? -✓✓ 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 -✓✓ 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? -✓✓ 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? -✓✓ Subcontractor
• Which one of the following sources of underwriting information provides a
hazard index by line of insurance for the various classifications? -✓✓ 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? -✓✓ 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 -✓✓ Prospective loss costs.
• 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 factor4% -✓✓ The insurance rate is $78. The pure
premium is $750,000/12,500 = $60. Then the insurance rate = ($60+$15) / (1-
0.04) = 78
• Which one the following statements is true regarding schedule rating and
individual risk premium modification plans? -✓✓ Generally, those insureds that
are eligible to use experience rating are also eligible to use schedule rating.
• Insurance rate regulatory objectives include all of the following, EXCEPT -✓✓
Competitive
• Which one of the following statements about the reunderwriting process is true
-✓✓ The process is circular and begins and ends with monitoring activities.
and Answer | Complete Study Pack | Grade
A+
• Which one of the following statements is correct with regard to regulation and
insurers' operations? -✓✓ Solvency regulation indirectly influences underwriting
by limiting new business for insurers.
• Underwriting regulations seek to ensure correct classification of insureds
because -✓✓ 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? -✓✓ 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? -✓✓ 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 -✓✓ 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? -✓✓ 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, -✓✓ 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? -✓✓ 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 -✓✓ 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? -✓✓ 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? -✓✓ Subcontractor
• Which one of the following sources of underwriting information provides a
hazard index by line of insurance for the various classifications? -✓✓ 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? -✓✓ 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 -✓✓ Prospective loss costs.
• 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 factor4% -✓✓ The insurance rate is $78. The pure
premium is $750,000/12,500 = $60. Then the insurance rate = ($60+$15) / (1-
0.04) = 78
• Which one the following statements is true regarding schedule rating and
individual risk premium modification plans? -✓✓ Generally, those insureds that
are eligible to use experience rating are also eligible to use schedule rating.
• Insurance rate regulatory objectives include all of the following, EXCEPT -✓✓
Competitive
• Which one of the following statements about the reunderwriting process is true
-✓✓ The process is circular and begins and ends with monitoring activities.
