AU 60 - Assignment 1 - Fundamentals of
Underwriting Questions and Answers
Verified by Experts
C. Underwriting practices must generate policy premiums that exceed losses and expenses.
Victor, the sales manager for Hallbinger's Insurance Company, wants the company to
grow in written premium. He wants his agents to write more auto and homeowners business. In
order to do so, the company must have adequate capacity. Which one of the following impacts
Victor's agents and the company the most concerning surplus and capacity?
A. Sales must submit business with a lower-than-average chance of loss.
B. Claims must pay only covered losses and have low expenses.
C. Underwriting practices must generate policy premiums that exceed losses and expenses.
D. Research and development must create policies which are marketable.
C. Develop and maintain a profitable book of business for the insurer. The principal
purpose of underwriting is to
A. Insure only those applicants with minimal or no loss exposure.
B. Decline to insure those applicants with a risk of incurring a severe loss.
,C. Develop and maintain a profitable book of business for the insurer.
D. Educate producers regarding the insurer's underwriting guidelines.
D. Develop and maintain a profitable book of business for the insurer. The purpose of
underwriting is to
A. Maximize the impact of adverse selection on the portfolio.
B. "Pre-qualify" or field underwrite applicants.
C. Compile information to develop a profile of loss exposures.
D. Develop and maintain a profitable book of business for the insurer.
B. Adverse selection. Sofie and the members of her homeowner's association have
homeowner's policies on their coastal dwellings. They have heard that there are eleven named
hurricane storms predicted for their coastal area this year. Sofie and the homeowner association
members plan to increase their homeowner's property coverage limits to handle their concern
about the possible hurricane damage. Their action is known as
A. Prevention of inadequate property limits.
B. Adverse selection.
,C. Prevention of errors and omission claims.
D. Property limits assessment.
D. Ensuring adequate policyholder's surplus Julio, a producer for Argot's Insurance
Company, submits an application for a 50-year-old residence to Mathilde, the underwriter. Julio
wants to know why the homeowners rate is higher for his 50-year-old residence. Mathilde
explains that the homeowners rate for the 50-year-old residence is not the same for a five-year-
old residence because the exposures are different. Which one of the following underwriting
profitability functions of Argot is Mathilde's explanation supporting?
A. Protecting the homeowner rate
B. Enforcing policy guidelines
C. Guarding against adverse selection
D. Ensuring adequate policyholder's surplus
D. Increase its written premium volume. An insurance company must have adequate
policyholders' surplus if it wishes to
A. Generate premiums that exceed losses.
, B. Avoid adverse selection.
C. Produce profitable business.
D. Increase its written premium volume.
D. Adverse selection. A situation that occurs because people with the greatest probability
of loss are the ones likely to purchase insurance is known as
A. Underwriting selection.
B. Applicant "pre-qualification."
C. Loss exposure evaluation.
D. Adverse selection.
A. Carefully selecting the applicants whose loss exposures they are willing to insure.
Underwriters can best minimize the effects of adverse selection by
A. Carefully selecting the applicants whose loss exposures they are willing to insure.
B. Accepting all applicants that are submitted by the producer.
C. Rejecting applicants who have had any prior losses.
D. Choosing to insure only those risks with a high probability of loss.
Underwriting Questions and Answers
Verified by Experts
C. Underwriting practices must generate policy premiums that exceed losses and expenses.
Victor, the sales manager for Hallbinger's Insurance Company, wants the company to
grow in written premium. He wants his agents to write more auto and homeowners business. In
order to do so, the company must have adequate capacity. Which one of the following impacts
Victor's agents and the company the most concerning surplus and capacity?
A. Sales must submit business with a lower-than-average chance of loss.
B. Claims must pay only covered losses and have low expenses.
C. Underwriting practices must generate policy premiums that exceed losses and expenses.
D. Research and development must create policies which are marketable.
C. Develop and maintain a profitable book of business for the insurer. The principal
purpose of underwriting is to
A. Insure only those applicants with minimal or no loss exposure.
B. Decline to insure those applicants with a risk of incurring a severe loss.
,C. Develop and maintain a profitable book of business for the insurer.
D. Educate producers regarding the insurer's underwriting guidelines.
D. Develop and maintain a profitable book of business for the insurer. The purpose of
underwriting is to
A. Maximize the impact of adverse selection on the portfolio.
B. "Pre-qualify" or field underwrite applicants.
C. Compile information to develop a profile of loss exposures.
D. Develop and maintain a profitable book of business for the insurer.
B. Adverse selection. Sofie and the members of her homeowner's association have
homeowner's policies on their coastal dwellings. They have heard that there are eleven named
hurricane storms predicted for their coastal area this year. Sofie and the homeowner association
members plan to increase their homeowner's property coverage limits to handle their concern
about the possible hurricane damage. Their action is known as
A. Prevention of inadequate property limits.
B. Adverse selection.
,C. Prevention of errors and omission claims.
D. Property limits assessment.
D. Ensuring adequate policyholder's surplus Julio, a producer for Argot's Insurance
Company, submits an application for a 50-year-old residence to Mathilde, the underwriter. Julio
wants to know why the homeowners rate is higher for his 50-year-old residence. Mathilde
explains that the homeowners rate for the 50-year-old residence is not the same for a five-year-
old residence because the exposures are different. Which one of the following underwriting
profitability functions of Argot is Mathilde's explanation supporting?
A. Protecting the homeowner rate
B. Enforcing policy guidelines
C. Guarding against adverse selection
D. Ensuring adequate policyholder's surplus
D. Increase its written premium volume. An insurance company must have adequate
policyholders' surplus if it wishes to
A. Generate premiums that exceed losses.
, B. Avoid adverse selection.
C. Produce profitable business.
D. Increase its written premium volume.
D. Adverse selection. A situation that occurs because people with the greatest probability
of loss are the ones likely to purchase insurance is known as
A. Underwriting selection.
B. Applicant "pre-qualification."
C. Loss exposure evaluation.
D. Adverse selection.
A. Carefully selecting the applicants whose loss exposures they are willing to insure.
Underwriters can best minimize the effects of adverse selection by
A. Carefully selecting the applicants whose loss exposures they are willing to insure.
B. Accepting all applicants that are submitted by the producer.
C. Rejecting applicants who have had any prior losses.
D. Choosing to insure only those risks with a high probability of loss.
