AU 60 - Chapter 1 UPDATED Questions and
CORRECT Answers
How do underwriters acheive a profitable book of business? - CORRECT ANSWER -
Guarding against adverse selection
Ensuring adequate policyholder surplus
Enforcing underwriting guidelines
Adverse Selection - CORRECT ANSWER - The tendency for people with greatest
probability of loss to be most likely to purchase insurance
How do underwriters Minimize Adverse Selection - CORRECT ANSWER - Carefully
selecting Applicants.
Charging Premiums that reflect Loss Exposure.
Monitoring Applications and Books of business for unusual Patterns of growth or loss.
Policy Holder Surplus - CORRECT ANSWER - An isurers total assets minus its total
liability.
How does Underwriting effect surplus - CORRECT ANSWER - When underwriting
practices generate policy premiums that exceed losses the policyholders surplus will increase
thereby increasing capacity
Underwriting Guidelines - CORRECT ANSWER - A written manuel that communicates an
insurers underwriting policy and that specifies the attributes of an account that an insurer is
willing to insure
How do underwriters enforce underwriting guidelines? - CORRECT ANSWER - Ensuring
accepted applicants adhere to underwriting guidelines.
What are the two types of Underwriters - CORRECT ANSWER - Line Underwriter
, Staff Underwriter
Descibe Staff Underwriter duties - CORRECT ANSWER - Assist underwriting
management with making and implementing underwriting policy.
Descibe Line Underwriter Duties - CORRECT ANSWER - evaluate individual accounts
for acceptability and execute underwriting policy outlined by Staff Underwriter
Line Underwriting Activities - CORRECT ANSWER - Select Insureds, Classify and price
accounts, Recommend and Provide Coverage, Manage a Book of Business, support producers
and Insureds, Coordinate with marketing efforts
Staff underwriter Activities - CORRECT ANSWER - Research the Market, Formulate
underwriting policy, revise underwriting guidelines, Evaluate Loss Experience, Research and
develope coverage forms, review and revise pricing plans, arrange treaty reinsurance, assist
others with complex accounts, conduct underwriting audits, participate in industry associations,
Conduct education and training
How do Underwriters Gain Authority - CORRECT ANSWER - Underwriters gain
authority with experience and positive results. Producers may gain underwriting authority based
on experience, profitability, and contractual arrangements. MGAs assume decentralized
underwriting authority, which capitalizes on an MGA's familiarity with a local area.
What are the Constraints to establishing underwriting policy? - CORRECT ANSWER -
Financial Capacity, Regulation, Personnel, Reinsurance
What are the two types of return on equity? - CORRECT ANSWER - SAP (Basis) and
GAAP (Basis)
Define SAP (Basis) - CORRECT ANSWER - Insurers Net Income/Average Policyholders
surplus
CORRECT Answers
How do underwriters acheive a profitable book of business? - CORRECT ANSWER -
Guarding against adverse selection
Ensuring adequate policyholder surplus
Enforcing underwriting guidelines
Adverse Selection - CORRECT ANSWER - The tendency for people with greatest
probability of loss to be most likely to purchase insurance
How do underwriters Minimize Adverse Selection - CORRECT ANSWER - Carefully
selecting Applicants.
Charging Premiums that reflect Loss Exposure.
Monitoring Applications and Books of business for unusual Patterns of growth or loss.
Policy Holder Surplus - CORRECT ANSWER - An isurers total assets minus its total
liability.
How does Underwriting effect surplus - CORRECT ANSWER - When underwriting
practices generate policy premiums that exceed losses the policyholders surplus will increase
thereby increasing capacity
Underwriting Guidelines - CORRECT ANSWER - A written manuel that communicates an
insurers underwriting policy and that specifies the attributes of an account that an insurer is
willing to insure
How do underwriters enforce underwriting guidelines? - CORRECT ANSWER - Ensuring
accepted applicants adhere to underwriting guidelines.
What are the two types of Underwriters - CORRECT ANSWER - Line Underwriter
, Staff Underwriter
Descibe Staff Underwriter duties - CORRECT ANSWER - Assist underwriting
management with making and implementing underwriting policy.
Descibe Line Underwriter Duties - CORRECT ANSWER - evaluate individual accounts
for acceptability and execute underwriting policy outlined by Staff Underwriter
Line Underwriting Activities - CORRECT ANSWER - Select Insureds, Classify and price
accounts, Recommend and Provide Coverage, Manage a Book of Business, support producers
and Insureds, Coordinate with marketing efforts
Staff underwriter Activities - CORRECT ANSWER - Research the Market, Formulate
underwriting policy, revise underwriting guidelines, Evaluate Loss Experience, Research and
develope coverage forms, review and revise pricing plans, arrange treaty reinsurance, assist
others with complex accounts, conduct underwriting audits, participate in industry associations,
Conduct education and training
How do Underwriters Gain Authority - CORRECT ANSWER - Underwriters gain
authority with experience and positive results. Producers may gain underwriting authority based
on experience, profitability, and contractual arrangements. MGAs assume decentralized
underwriting authority, which capitalizes on an MGA's familiarity with a local area.
What are the Constraints to establishing underwriting policy? - CORRECT ANSWER -
Financial Capacity, Regulation, Personnel, Reinsurance
What are the two types of return on equity? - CORRECT ANSWER - SAP (Basis) and
GAAP (Basis)
Define SAP (Basis) - CORRECT ANSWER - Insurers Net Income/Average Policyholders
surplus
