ASLI 320 QUESTIONS WITH VERIFIED ANSWERS
The balance sheet provides a snapshot of an organization's financial condition - Answers -
a. Over one 12 month period.
b. For at least two points in time for comparison purposes.
C. At a given point in time.
d. At the start and end of a business day.
Various financial measures are used to evaluate underwriting results. Some are
developed from figures such as incurred losses. Incurred losses are - Answers - A. Paid
losses, paid loss adjustment expense, loss reserves, and loss adjustment reserves.
b. Losses resulting from claim payments.
c. Expenses incurred investigating and settling claims.
d. Expenses incurred in setting loss reserves.
Which one of the following tasks is the responsibility of a staff underwriter as opposed to a
line underwriter? - Answers - A. Review and revise pricing plans
b. Verify that policies are issued with appropriate forms
c. Assist producers and insureds in determining appropriate coverage
d. Prepare premium quotations
The amount of risk retained by a primary insurer under its reinsurance program is
influenced by - Answers - a. The maximum policy limits written by the primary insurer.
b. The reinsurer's financial strength.
c. The primary insurer's exposure to extra-contractual obligations.
D. Reinsurer requirements for retention.
The authority that the principal specifically grants to the agent is contained in the agency
contract. This authority is known as - Answers - a. Contractual authority.
B. Express authority.
c. Implied authority.
d. Apparent authority.
An insurer must decide what provision for profit and contingencies should be included in
the rate and should consider the overall desired rate of return, including likely returns from
investment income versus - Answers - a. Loss adjustment expenses.
b. Policyholder surplus.
c. Loss reserve amounts.
D. Underwriting profit.
Licensed surplus lines intermediaries are permitted to place business with alien insurers
that meet which one of the following requirements? - Answers - a. They submit annual
financial statements to the National Association of Professional Surplus Lines Offices
(NAPSLO).
B. They appear on the Quarterly Listing of Alien Insurers published by the International
Insurers Department (IID) of the National Association of Insurance Commissioners
(NAIC).
c. They maintain capital and surplus within the U.S. of at least $4,500,000.
d. They obtain approval to write surplus lines business from state insurance regulators in
the state in which the risk is located.
, Which one of the following is a negotiation process in which a neutral outside party helps
participants examine the issues and develop a mutually agreeable settlement? - Answers
- a. Appraisal
b. Mini-trial
C. Mediation
d. Arbitration
The role of the surplus lines intermediary in the release of a new insurance product or
program depends on - Answers - a. Whether the intermediary has conducted claims
analysis and developed the policy wording.
b. Whether the intermediary has binding authority with the insurer.
C. The origin of the product concept and the associated marketing plan.
d. The market that the new product or program was designed to target.
Durham Surplus Lines Intermediary has total revenues of $10 million and pro forma pretax
earnings of $2 million. The minimum risk return rate on alternative investments is 8
percent. The additional rate of return based on the risk of investing in Durham is 17
percent. Based on the income approach and rounding to the nearest million dollars, which
one of the following represents the current value of Durham's book of business? -
Answers - A. $8 million
b. $12 million
c. $25 million
d. $40 million
Which one of the following is most likely to cause insurance demand to be inelastic? -
Answers - a. Hard markets
b. Economic prosperity
C. Required coverage
d. Increased competition
Which one of the following statements is correct regarding treaty reinsurance? - Answers -
a. Treaty reinsurance agreements are usually designed to allow underwriters to exercise
discretion in determining which loss exposures to cede to the treaty reinsurers.
b. The price and terms of reinsurance agreements are standard with little negotiation
between the parties.
c. Treaty reinsurance agreements are designed to address a primary insurer's need to
insure atypical loss exposures.
D. A long-term relationship with a reinsurer usually enables primary insurers to
consistently fulfill producers' requests to place insurance with them.
Which one of the following statements concerning the uses and differences between
Generally Accepted Accounting Principles (GAAP) and Statutory Accounting Principles
(SAP) is true? - Answers - a. An insurer can choose whether to use GAAP or SAP, but
once the decision is made, it must use the selected accounting framework for all financial
reporting, regardless of the audience.
b. An insurer is required to use SAP whenever it communicates with policyholders and
stockholders, and GAAP when communicating with regulators.
c. GAAP is far more conservative than SAP with regard to income and expense
recognition.
D. GAAP treats a business as a going concern and focuses on measuring income, while
SAP focuses on solvency and meeting policyholder obligations.
Testing of a new surplus lines program might not be necessary if - Answers - A. The
The balance sheet provides a snapshot of an organization's financial condition - Answers -
a. Over one 12 month period.
b. For at least two points in time for comparison purposes.
C. At a given point in time.
d. At the start and end of a business day.
Various financial measures are used to evaluate underwriting results. Some are
developed from figures such as incurred losses. Incurred losses are - Answers - A. Paid
losses, paid loss adjustment expense, loss reserves, and loss adjustment reserves.
b. Losses resulting from claim payments.
c. Expenses incurred investigating and settling claims.
d. Expenses incurred in setting loss reserves.
Which one of the following tasks is the responsibility of a staff underwriter as opposed to a
line underwriter? - Answers - A. Review and revise pricing plans
b. Verify that policies are issued with appropriate forms
c. Assist producers and insureds in determining appropriate coverage
d. Prepare premium quotations
The amount of risk retained by a primary insurer under its reinsurance program is
influenced by - Answers - a. The maximum policy limits written by the primary insurer.
b. The reinsurer's financial strength.
c. The primary insurer's exposure to extra-contractual obligations.
D. Reinsurer requirements for retention.
The authority that the principal specifically grants to the agent is contained in the agency
contract. This authority is known as - Answers - a. Contractual authority.
B. Express authority.
c. Implied authority.
d. Apparent authority.
An insurer must decide what provision for profit and contingencies should be included in
the rate and should consider the overall desired rate of return, including likely returns from
investment income versus - Answers - a. Loss adjustment expenses.
b. Policyholder surplus.
c. Loss reserve amounts.
D. Underwriting profit.
Licensed surplus lines intermediaries are permitted to place business with alien insurers
that meet which one of the following requirements? - Answers - a. They submit annual
financial statements to the National Association of Professional Surplus Lines Offices
(NAPSLO).
B. They appear on the Quarterly Listing of Alien Insurers published by the International
Insurers Department (IID) of the National Association of Insurance Commissioners
(NAIC).
c. They maintain capital and surplus within the U.S. of at least $4,500,000.
d. They obtain approval to write surplus lines business from state insurance regulators in
the state in which the risk is located.
, Which one of the following is a negotiation process in which a neutral outside party helps
participants examine the issues and develop a mutually agreeable settlement? - Answers
- a. Appraisal
b. Mini-trial
C. Mediation
d. Arbitration
The role of the surplus lines intermediary in the release of a new insurance product or
program depends on - Answers - a. Whether the intermediary has conducted claims
analysis and developed the policy wording.
b. Whether the intermediary has binding authority with the insurer.
C. The origin of the product concept and the associated marketing plan.
d. The market that the new product or program was designed to target.
Durham Surplus Lines Intermediary has total revenues of $10 million and pro forma pretax
earnings of $2 million. The minimum risk return rate on alternative investments is 8
percent. The additional rate of return based on the risk of investing in Durham is 17
percent. Based on the income approach and rounding to the nearest million dollars, which
one of the following represents the current value of Durham's book of business? -
Answers - A. $8 million
b. $12 million
c. $25 million
d. $40 million
Which one of the following is most likely to cause insurance demand to be inelastic? -
Answers - a. Hard markets
b. Economic prosperity
C. Required coverage
d. Increased competition
Which one of the following statements is correct regarding treaty reinsurance? - Answers -
a. Treaty reinsurance agreements are usually designed to allow underwriters to exercise
discretion in determining which loss exposures to cede to the treaty reinsurers.
b. The price and terms of reinsurance agreements are standard with little negotiation
between the parties.
c. Treaty reinsurance agreements are designed to address a primary insurer's need to
insure atypical loss exposures.
D. A long-term relationship with a reinsurer usually enables primary insurers to
consistently fulfill producers' requests to place insurance with them.
Which one of the following statements concerning the uses and differences between
Generally Accepted Accounting Principles (GAAP) and Statutory Accounting Principles
(SAP) is true? - Answers - a. An insurer can choose whether to use GAAP or SAP, but
once the decision is made, it must use the selected accounting framework for all financial
reporting, regardless of the audience.
b. An insurer is required to use SAP whenever it communicates with policyholders and
stockholders, and GAAP when communicating with regulators.
c. GAAP is far more conservative than SAP with regard to income and expense
recognition.
D. GAAP treats a business as a going concern and focuses on measuring income, while
SAP focuses on solvency and meeting policyholder obligations.
Testing of a new surplus lines program might not be necessary if - Answers - A. The
