AINS 101 UPDATED TEST PAPER QUESTIONS AND
ANSWERS RATED A+
✔✔How do you get combined ratio? - ✔✔Loss Ratio + Expense Ratio = (Incurred
Losses/Earned Premiums) + (Incurred Underwriting Expenses/Written Premiums)
✔✔The financial report for LMN Insurance contains the following information:
Earned premiums $8,000,000
Written premiums $10,000,000
Incurred losses $6,000,000
Incurred underwriting expenses $4,000,000
What is LMN Insurance's expense ratio? - ✔✔4/10 = .4 (40%)
✔✔How do you get expense ratio? - ✔✔Incurred underwriting expenses / Written
premiums
✔✔How do you get loss ratio? - ✔✔Incurred Losses / Earned Premiums
✔✔As it continues to grow, Anchoy Insurance is examining other distribution channels
to more effectively market its products. Through this experience, which of one the
following will Anchoy most likely learn?
A. No matter what it selects, Anchoy must use a producer to effectively sell its products.
B. Anchoy can use group marketing to target large numbers of recent local college
graduates.
C. Using call centers will take away its need for customer service representatives or
chatbots.
D. It will market through banks and financial services when utilizing the exclusive
agency distribution channel. - ✔✔Anchoy can use group marketing to target large
numbers of recent local college graduates.
,✔✔Spencer Insurance Associates is an independent agency selling primarily
homeowners policies. This agency
A. Is free to work with as many different insurers as it wants.
B. Generally represents its customers rather than insurance companies.
C. Can use the policyholder expiration lists, but they are owned by insurers.
D. Cannot commit an insurer to write a policy, unlike a broker, who usually can. - ✔✔Is
free to work with as many different insurers as it wants.
✔✔The key to the direct writer marketing system is that
A. Customers purchase insurance through call centers.
B. An agency is contracted to sell insurance for one insurer or group of insurers.
C. The insurer is using its own employees as producers.
D. Customers can get quotes for coverage through web-based portals. - ✔✔The insurer
is using its own employees as producers.
✔✔One of the reasons for insurance regulation is to prevent destructive competition. In
which one of the following scenarios would destructive competition be exhibited?
A. North Insurance is trying to break into a specialized type of insurance market that is
generally out of range for most customers; North decides to price its coverages
commensurate with other insurers offering similar policies.
B. South Insurance purposely writes its policies with hard-to-understand terminology
that only its agents can explain, so that its insureds will purchase its products without
asking a lot of questions.
C. West Insurance has had three straight years of record-setting low claims and has
accumulated more than expected profits; it plans on the trend continuing and
overspends on new long-term investments.
D. East Insurance comes up with a new rate structure allowing "preferred customers"
discounted policies when they continually re - ✔✔East Insurance comes up with a new
rate structure allowing "preferred customers" discounted policies when they continually
renew year after year; East eventually loses needed revenue but is rewarded by its
competitors leaving the market.
✔✔What type of financial statement shows the financial position of an insurance
company at any particular point in time? - ✔✔Balance sheet
✔✔Which one of the following is shown on the balance sheet of an insurer?
A. Acquisition expenses
B. Incurred losses
C. Net investment income
D. Cash and short-term investments - ✔✔Cash and short-term investments
,✔✔Which one of the following is a nonadmitted asset?
A. Real estate
B. Stocks
C. Bonds
D. Office equipment - ✔✔Office equipment
✔✔The financial report for Hometown Insurer contains the following information:
Earned premiums $4,000,000
Written premiums $5,000,000
Net investment income $1,000,000
Incurred Losses $3,000,000
Incurred underwriting expense $2,000,000
What is Hometown Insurer's expense ratio? - ✔✔2/5 = .4 (40%)
✔✔The key to the direct writer marketing system is that
A. Customers can get quotes for coverage through web-based portals.
B. An agency is contracted to sell insurance for one insurer or group of insurers.
C. Customers purchase insurance through call centers.
D. The insurer is using its own employees as producers. - ✔✔The insurer is using its
own employees as producers.
✔✔Insuring individuals with a high probability of loss at a cost lower than the insurer
would normally charge for that risk because it wasn't aware of the actual risk involved is
known as
A. Adverse selection.
B. Unprofitable business.
C. Policyholders' surplus.
D. Capacity. - ✔✔Adverse selection.
✔✔Clare is a commercial lines underwriter. She always tries to follow underwriting
guidelines, effectively evaluate loss exposures, and charge adequate premiums. By
doing these things, Clare's goal is to ensure
A. Adequate policyholders' surplus.
B. A significant bonus.
C. A collaborative relationship with her producers.
D. Adverse selection. - ✔✔Adequate policyholders' surplus.
✔✔Which one of the following statements is correct regarding the interaction between
risk control and other insurer functions?
, A. Risk control representatives are responsible for compiling all the information required
for a premium audit.
B. Risk control personnel can assist underwriters in modifying a new applicant's loss
exposures to meet eligibility requirements.
C. By making marginal accounts acceptable, risk control helps the Claims Department
settle losses.
D. Risk control personnel are responsible for answering any complex questions that
insureds have about premium audits. - ✔✔Risk control personnel can assist
underwriters in modifying a new applicant's loss exposures to meet eligibility
requirements.
✔✔Brian works in the Underwriting department for DGH Insurance. In addition to
carefully selecting insureds, he works with producers and premium auditors to ensure
accurate classification and pricing. Brian is a
A. Staff underwriter
B. Corporate underwriter
C. Field underwriter
D. Account manager - ✔✔Field underwriter
✔✔Aimee recently accepted a job in the Underwriting department at Noble Insurance
Company. Her responsibilities will include developing coverage forms, arranging
reinsurance agreements, and conducting underwriting audits. Which one of the
following is the title of Aimee's new job?
A. Field Underwriter
B. Underwriting Technician
C. Corporate Underwriter
D. Line Underwriter - ✔✔Corporate Underwriter (Corporate underwriters, sometimes
referred to as staff underwriters, perform duties including: developing coverage forms,
arranging reinsurance, conducting underwriting audits, researching the market, and
revising underwriting guidelines.)
✔✔As an experienced underwriter, Rick has learned to make every effort to avoid a
mistake that can produce insufficient premium to cover losses, or pricing that isn't
competitive. Which one of the following underwriting mistakes can often cause these
issues?
A. Misclassifying exposures
B. Recommending the applicant implement risk control measures
C. Using predictive models
D. Adjusting policy terms and conditions - ✔✔Misclassifying exposures
(Misclassification of exposures can produce insufficient premium to cover losses or
pricing that isn't competitive.)
ANSWERS RATED A+
✔✔How do you get combined ratio? - ✔✔Loss Ratio + Expense Ratio = (Incurred
Losses/Earned Premiums) + (Incurred Underwriting Expenses/Written Premiums)
✔✔The financial report for LMN Insurance contains the following information:
Earned premiums $8,000,000
Written premiums $10,000,000
Incurred losses $6,000,000
Incurred underwriting expenses $4,000,000
What is LMN Insurance's expense ratio? - ✔✔4/10 = .4 (40%)
✔✔How do you get expense ratio? - ✔✔Incurred underwriting expenses / Written
premiums
✔✔How do you get loss ratio? - ✔✔Incurred Losses / Earned Premiums
✔✔As it continues to grow, Anchoy Insurance is examining other distribution channels
to more effectively market its products. Through this experience, which of one the
following will Anchoy most likely learn?
A. No matter what it selects, Anchoy must use a producer to effectively sell its products.
B. Anchoy can use group marketing to target large numbers of recent local college
graduates.
C. Using call centers will take away its need for customer service representatives or
chatbots.
D. It will market through banks and financial services when utilizing the exclusive
agency distribution channel. - ✔✔Anchoy can use group marketing to target large
numbers of recent local college graduates.
,✔✔Spencer Insurance Associates is an independent agency selling primarily
homeowners policies. This agency
A. Is free to work with as many different insurers as it wants.
B. Generally represents its customers rather than insurance companies.
C. Can use the policyholder expiration lists, but they are owned by insurers.
D. Cannot commit an insurer to write a policy, unlike a broker, who usually can. - ✔✔Is
free to work with as many different insurers as it wants.
✔✔The key to the direct writer marketing system is that
A. Customers purchase insurance through call centers.
B. An agency is contracted to sell insurance for one insurer or group of insurers.
C. The insurer is using its own employees as producers.
D. Customers can get quotes for coverage through web-based portals. - ✔✔The insurer
is using its own employees as producers.
✔✔One of the reasons for insurance regulation is to prevent destructive competition. In
which one of the following scenarios would destructive competition be exhibited?
A. North Insurance is trying to break into a specialized type of insurance market that is
generally out of range for most customers; North decides to price its coverages
commensurate with other insurers offering similar policies.
B. South Insurance purposely writes its policies with hard-to-understand terminology
that only its agents can explain, so that its insureds will purchase its products without
asking a lot of questions.
C. West Insurance has had three straight years of record-setting low claims and has
accumulated more than expected profits; it plans on the trend continuing and
overspends on new long-term investments.
D. East Insurance comes up with a new rate structure allowing "preferred customers"
discounted policies when they continually re - ✔✔East Insurance comes up with a new
rate structure allowing "preferred customers" discounted policies when they continually
renew year after year; East eventually loses needed revenue but is rewarded by its
competitors leaving the market.
✔✔What type of financial statement shows the financial position of an insurance
company at any particular point in time? - ✔✔Balance sheet
✔✔Which one of the following is shown on the balance sheet of an insurer?
A. Acquisition expenses
B. Incurred losses
C. Net investment income
D. Cash and short-term investments - ✔✔Cash and short-term investments
,✔✔Which one of the following is a nonadmitted asset?
A. Real estate
B. Stocks
C. Bonds
D. Office equipment - ✔✔Office equipment
✔✔The financial report for Hometown Insurer contains the following information:
Earned premiums $4,000,000
Written premiums $5,000,000
Net investment income $1,000,000
Incurred Losses $3,000,000
Incurred underwriting expense $2,000,000
What is Hometown Insurer's expense ratio? - ✔✔2/5 = .4 (40%)
✔✔The key to the direct writer marketing system is that
A. Customers can get quotes for coverage through web-based portals.
B. An agency is contracted to sell insurance for one insurer or group of insurers.
C. Customers purchase insurance through call centers.
D. The insurer is using its own employees as producers. - ✔✔The insurer is using its
own employees as producers.
✔✔Insuring individuals with a high probability of loss at a cost lower than the insurer
would normally charge for that risk because it wasn't aware of the actual risk involved is
known as
A. Adverse selection.
B. Unprofitable business.
C. Policyholders' surplus.
D. Capacity. - ✔✔Adverse selection.
✔✔Clare is a commercial lines underwriter. She always tries to follow underwriting
guidelines, effectively evaluate loss exposures, and charge adequate premiums. By
doing these things, Clare's goal is to ensure
A. Adequate policyholders' surplus.
B. A significant bonus.
C. A collaborative relationship with her producers.
D. Adverse selection. - ✔✔Adequate policyholders' surplus.
✔✔Which one of the following statements is correct regarding the interaction between
risk control and other insurer functions?
, A. Risk control representatives are responsible for compiling all the information required
for a premium audit.
B. Risk control personnel can assist underwriters in modifying a new applicant's loss
exposures to meet eligibility requirements.
C. By making marginal accounts acceptable, risk control helps the Claims Department
settle losses.
D. Risk control personnel are responsible for answering any complex questions that
insureds have about premium audits. - ✔✔Risk control personnel can assist
underwriters in modifying a new applicant's loss exposures to meet eligibility
requirements.
✔✔Brian works in the Underwriting department for DGH Insurance. In addition to
carefully selecting insureds, he works with producers and premium auditors to ensure
accurate classification and pricing. Brian is a
A. Staff underwriter
B. Corporate underwriter
C. Field underwriter
D. Account manager - ✔✔Field underwriter
✔✔Aimee recently accepted a job in the Underwriting department at Noble Insurance
Company. Her responsibilities will include developing coverage forms, arranging
reinsurance agreements, and conducting underwriting audits. Which one of the
following is the title of Aimee's new job?
A. Field Underwriter
B. Underwriting Technician
C. Corporate Underwriter
D. Line Underwriter - ✔✔Corporate Underwriter (Corporate underwriters, sometimes
referred to as staff underwriters, perform duties including: developing coverage forms,
arranging reinsurance, conducting underwriting audits, researching the market, and
revising underwriting guidelines.)
✔✔As an experienced underwriter, Rick has learned to make every effort to avoid a
mistake that can produce insufficient premium to cover losses, or pricing that isn't
competitive. Which one of the following underwriting mistakes can often cause these
issues?
A. Misclassifying exposures
B. Recommending the applicant implement risk control measures
C. Using predictive models
D. Adjusting policy terms and conditions - ✔✔Misclassifying exposures
(Misclassification of exposures can produce insufficient premium to cover losses or
pricing that isn't competitive.)
