CPCU 520 NEW EXAM WITH ALL QUESTIONS AND CORRECT
ANSWERS 100% VERIFIED
NAIC Accreditation Program - ANSWER To become accredited, the state must submit
to a full on-site accreditation review. The review must be performed at least once every
five years with interim annual reviews. At present, all 50 states and the D.C. are
accredited.
NAIC's Financial Solvency Core Principles - ANSWER 1) Regulatory reporting,
disclosure, and transparency
2) Off-site monitoring and analysis
3) ON-site, risk-focused examinations
4) Reserves, capital adequacy, and solvency
5) regulatory control of major, non-immunized, risk-related
transactions
6) corrective and preventive measures and enforcement
7) market exiting and receivership
NAIC's Accounting Practices and Procedures Manual and the Annual Statement Blank
are used for. - ANSWER Consistency of accounting treatment and financial reporting
The majority of Insurers. - ANSWER Have their financial statement audited by a CPA
and their reserves appraised by an actuary to ensure accurate reserve estimates.
Liquidation of Insolvent Insurers - ANSWER With proper management, successful
rehabilitation may be possible for insurers placed into receivership, but if not, it is
liquidated according to the state's insurance code.
,State Guaranty Funds - ANSWER Do not prevent insurer insolvency, but they mitigate
its effects. Pay unpaid claims of insolvent insurers licensed within the state.
Assessments are made only when an insurer "fails" and policies will terminate within 30
days of failure. Maximum claim limit is lesser of policy limit or $300,000. Most states
apply a $100 deductible to unpaid claims. Self-insured groups are not protected by
guaranty funds, and risk retention groups are prohibited from participating in them.
Factors which contribute to insolvency - ANSWER 1) Rapid Premium Growth
2) Inadequate Insurance Rates
3) Inadequate Reserves
4) Excessive Expenses
5) Lax Controls over managing general agents
6) Uncollectible Reinsurance
7) Fraud
Proprietary insurers - ANSWER Insurer formed for the purpose of earning a profit for
its owners.
Mutual insurer - ANSWER An insurer owned by its policyholders and incorporated to
provide insurance for them.
Reciprocal Insurance Exchange interinsurance exchange An insurer owned by its
policyholders in the form of an unincorporated association through which members
(called subscribers) obtain insurance; the attorney-in-fact manages the exchange. The
members retain ownership and mutually insure each other. Profits and losses are
shared in proportion to the amount of insurance purchased from the exchange by that
owner.
FAIR plans - An insurance pool which distributes the risk of loss to private insurers,
who as a group, have an unfilled need for property insurance upon urban properties
especially those subject to loss by riot or civil commotion.
Residual Market - The general term for insurers and other organizations that provide
,insurance through a pool of risk-sharing arrangements for those unable to get it in the
admitted market.
Surplus lines broker - ANSWER An individual or firm that places business with insurers
not licensed (nonadmitted) in the state in which the transaction occurs but that is
permitted to write insurance because coverage is not available through standard
market insurers.
Independent agency and brokerage marketing system - ANSWER An insurance
marketing system under which producers (agents or brokers) who are independent
contractors, sell insurance, usually as representatives of several unrelated insurers.
Direct writer marketing system - ANSWER An insurance marketing system that uses
sales agents (or sales representatives) who are direct employees of the insurer.
Exclusive marketing system - ANSWER An insurance marketing system under which
agents contract to sell insurance exclusively for one insurer (or for an associated group
of insurers).
Distribution channel - ANSWER The channel used by the producer of a product or
service to transfer that product or service to the ultimate customer.
Probable maximum loss (PML) - ANSWER The largest loss that an insured is likely to
sustain.
Underwriting - ANSWER The process of selecting insureds, pricing coverage,
determining insurance policy terms and conditions, and then monitoring the
underwriting decisions made.
Book of business - ANSWER A group of policies with a common characteristic, such as
territory or type of coverage, or all policies written by a particular insurer or agency.
Underwriting guidelines (Underwriting guide) - ANSWER A written manual that
, communicates an insurer's underwriting policy and that specifies the attributes of an
account that an insurer is willing to insure.
Adverse selection - ANSWER In general, the tendency for people with the greatest
probability of loss to be the ones most likely to purchase insurance.
Chapter 2 - ANSWER
National Association of Insurance Commissioners (NAIC) - ANSWER An association of
insurance commissioners from the fifty U.S. states, the District of Columbia, and the five
U.S. territories and possessions, whose purpose is to coordinate insurance regulation
activities among various state insurance departments.
Model law A bill drafted by NAIC, in a state statutory form, which reflects NAIC's
proposed solution to a given problem or issue and provides a common basis in the
states for drafting laws that affect the insurance industry. Any state may choose to
adopt the bill or adopt it with modifications.
Model regulation - ANSWER A model regulation that may be adopted by a state
insurance department if the model law is enacted.
Domestic insurer - ANSWER An insurer operating in the state in which it is domiciled.
Foreign insurer - ANSWER An insurer authorized to operate in a state but domiciled in
another state.
Alien insurer - ANSWER An insurer domiciled in a country other than the United States.
Capital stock - ANSWER A balance sheet value that represents the amount of funds
that a corporation's stockholders have contributed through the purchase of stock.
ANSWERS 100% VERIFIED
NAIC Accreditation Program - ANSWER To become accredited, the state must submit
to a full on-site accreditation review. The review must be performed at least once every
five years with interim annual reviews. At present, all 50 states and the D.C. are
accredited.
NAIC's Financial Solvency Core Principles - ANSWER 1) Regulatory reporting,
disclosure, and transparency
2) Off-site monitoring and analysis
3) ON-site, risk-focused examinations
4) Reserves, capital adequacy, and solvency
5) regulatory control of major, non-immunized, risk-related
transactions
6) corrective and preventive measures and enforcement
7) market exiting and receivership
NAIC's Accounting Practices and Procedures Manual and the Annual Statement Blank
are used for. - ANSWER Consistency of accounting treatment and financial reporting
The majority of Insurers. - ANSWER Have their financial statement audited by a CPA
and their reserves appraised by an actuary to ensure accurate reserve estimates.
Liquidation of Insolvent Insurers - ANSWER With proper management, successful
rehabilitation may be possible for insurers placed into receivership, but if not, it is
liquidated according to the state's insurance code.
,State Guaranty Funds - ANSWER Do not prevent insurer insolvency, but they mitigate
its effects. Pay unpaid claims of insolvent insurers licensed within the state.
Assessments are made only when an insurer "fails" and policies will terminate within 30
days of failure. Maximum claim limit is lesser of policy limit or $300,000. Most states
apply a $100 deductible to unpaid claims. Self-insured groups are not protected by
guaranty funds, and risk retention groups are prohibited from participating in them.
Factors which contribute to insolvency - ANSWER 1) Rapid Premium Growth
2) Inadequate Insurance Rates
3) Inadequate Reserves
4) Excessive Expenses
5) Lax Controls over managing general agents
6) Uncollectible Reinsurance
7) Fraud
Proprietary insurers - ANSWER Insurer formed for the purpose of earning a profit for
its owners.
Mutual insurer - ANSWER An insurer owned by its policyholders and incorporated to
provide insurance for them.
Reciprocal Insurance Exchange interinsurance exchange An insurer owned by its
policyholders in the form of an unincorporated association through which members
(called subscribers) obtain insurance; the attorney-in-fact manages the exchange. The
members retain ownership and mutually insure each other. Profits and losses are
shared in proportion to the amount of insurance purchased from the exchange by that
owner.
FAIR plans - An insurance pool which distributes the risk of loss to private insurers,
who as a group, have an unfilled need for property insurance upon urban properties
especially those subject to loss by riot or civil commotion.
Residual Market - The general term for insurers and other organizations that provide
,insurance through a pool of risk-sharing arrangements for those unable to get it in the
admitted market.
Surplus lines broker - ANSWER An individual or firm that places business with insurers
not licensed (nonadmitted) in the state in which the transaction occurs but that is
permitted to write insurance because coverage is not available through standard
market insurers.
Independent agency and brokerage marketing system - ANSWER An insurance
marketing system under which producers (agents or brokers) who are independent
contractors, sell insurance, usually as representatives of several unrelated insurers.
Direct writer marketing system - ANSWER An insurance marketing system that uses
sales agents (or sales representatives) who are direct employees of the insurer.
Exclusive marketing system - ANSWER An insurance marketing system under which
agents contract to sell insurance exclusively for one insurer (or for an associated group
of insurers).
Distribution channel - ANSWER The channel used by the producer of a product or
service to transfer that product or service to the ultimate customer.
Probable maximum loss (PML) - ANSWER The largest loss that an insured is likely to
sustain.
Underwriting - ANSWER The process of selecting insureds, pricing coverage,
determining insurance policy terms and conditions, and then monitoring the
underwriting decisions made.
Book of business - ANSWER A group of policies with a common characteristic, such as
territory or type of coverage, or all policies written by a particular insurer or agency.
Underwriting guidelines (Underwriting guide) - ANSWER A written manual that
, communicates an insurer's underwriting policy and that specifies the attributes of an
account that an insurer is willing to insure.
Adverse selection - ANSWER In general, the tendency for people with the greatest
probability of loss to be the ones most likely to purchase insurance.
Chapter 2 - ANSWER
National Association of Insurance Commissioners (NAIC) - ANSWER An association of
insurance commissioners from the fifty U.S. states, the District of Columbia, and the five
U.S. territories and possessions, whose purpose is to coordinate insurance regulation
activities among various state insurance departments.
Model law A bill drafted by NAIC, in a state statutory form, which reflects NAIC's
proposed solution to a given problem or issue and provides a common basis in the
states for drafting laws that affect the insurance industry. Any state may choose to
adopt the bill or adopt it with modifications.
Model regulation - ANSWER A model regulation that may be adopted by a state
insurance department if the model law is enacted.
Domestic insurer - ANSWER An insurer operating in the state in which it is domiciled.
Foreign insurer - ANSWER An insurer authorized to operate in a state but domiciled in
another state.
Alien insurer - ANSWER An insurer domiciled in a country other than the United States.
Capital stock - ANSWER A balance sheet value that represents the amount of funds
that a corporation's stockholders have contributed through the purchase of stock.
