COMMERCIAL UNDERWRITING
PRINCIPLES TEST #1 QUESTIONS AND
ANSWERS
Because underwriting guidelines usually specify the attributes of accounts that
insurers are willing to insure, insurers consider them: - ANSWER-Trade secrets.
Which one of the following cases illustrates how underwriting guidelines ensure that
selection decisions provide uniformity and consistency by all the insurer's
underwriters? - ANSWER-Cromley is training new underwriters and is using a work
sample for a homeowner risk which has a unacceptable roof and an overgrown yard.
New underwriters Erin and Filip check the guidelines and make the same
underwriting decision to decline the risk.
During which one of the following steps in the underwriting process would an
underwriter request a loss control visit to a prospective policyholder's location? -
ANSWER-Evaluating the submission
Which one of the following statements is correct with regard to the submission
evaluation step in the underwriting process? - ANSWER-Government reports that
provide underwriting information include motor vehicle reports, criminal records, and
civil court records.
Paying close attention to hazards is an important consideration when reviewing an
underwriting submission. An underwriter should recognize a moral hazard, which is a
condition that: - ANSWER-Increases the likelihood that a person will intentionally
cause or exaggerate a loss.
An underwriter is working with a loss control representative on a new opportunity.
Given the complexity of the exposures, a physical survey is conducted by the loss
control representative, and a formal report is prepared. The report reveals that the
insured owns several unattended properties, and that they were unlocked when the
loss control representative conducted the survey. This failure to properly secure an
unattended building would be an indicator to the underwriter of which one of the
following types of hazard? - ANSWER-Morale
The percentage of insurance policies that an insurer has renewed is referred to as
its: - ANSWER-Retention ratio.
Which one of the following represents two nonfinancial measures that are used to
evaluate underwriting performance by focusing on underwriting actions? - ANSWER-
Retention ratio and hit ratio
Which one of the following lists the financial components used to calculate a
combined ratio? - ANSWER-Loss and loss adjustment expenses incurred, earned
and written premiums, and underwriting expenses incurred
, The retention ratio as an underwriting performance measure is the percentage of: -
ANSWER-Insurance policies renewed.
A situation that occurs because people with the greatest probability of loss are the
ones likely to purchase insurance is known as: - ANSWER-Adverse selection.
The purpose of underwriting is to: - ANSWER-Develop and maintain a profitable
book of business for the insurer.
A group of policies with a common characteristic, such as a territory or type of
coverage, or all policies written by a particular insurer, producer, or agency is
referred to as: - ANSWER-A book of business.
Tobias, a successful producer with Barnley's Insurance Company, is struggling with
an intricate quote on homeowners coverage for his insured, Hanna. Hanna not only
has substantial collections of guns and silverware, but also has a small farm located
at her premises. Which one of the following individuals from Barnley Insurance
Company could provide assistance and support to Tobias? - ANSWER-The line
underwriter
Which one of the following statements is correct with respect to line underwriters? -
ANSWER-Line underwriters can offer valuable technical assistance to an insured's
risk manager and to the producer responsible for the account.
The common distinction between line underwriters and staff underwriters is that line
underwriters: - ANSWER-Implement the steps in the underwriting process. Staff
underwriters assist underwriting management with formulating underwriting policy.
Specialty insurers such as those offering surety bonds, aviation insurance, and
livestock mortality insurance usually : - ANSWER-Centralize underwriting authority.
Depending on the type of insurance, insurers use automated underwriting systems
to: - ANSWER-Encode underwriting guidelines.
Which one of the following is a constraint to the development of underwriting policy?
- ANSWER-Financial capacity
Which one of the following is a constraint of underwriting policy? - ANSWER-
Reinsurance
Argot Stock Insurance Company's (Argot) net income is $1,000,000 and its average
owners' equity is $18,000,000. Argot's average policyholders' surplus is
$20,000,000. Using the GAAP formula, which one of the following is Argot's return
on equity? - ANSWER-1,000,000/18,000,000=5.56%
Which one of the following is determined by a company's underwriting policy? -
ANSWER-Composition of the insurer's book of business
Underwriting guidelines serve which one of the following purposes? - ANSWER-
Avoid duplication of effort
PRINCIPLES TEST #1 QUESTIONS AND
ANSWERS
Because underwriting guidelines usually specify the attributes of accounts that
insurers are willing to insure, insurers consider them: - ANSWER-Trade secrets.
Which one of the following cases illustrates how underwriting guidelines ensure that
selection decisions provide uniformity and consistency by all the insurer's
underwriters? - ANSWER-Cromley is training new underwriters and is using a work
sample for a homeowner risk which has a unacceptable roof and an overgrown yard.
New underwriters Erin and Filip check the guidelines and make the same
underwriting decision to decline the risk.
During which one of the following steps in the underwriting process would an
underwriter request a loss control visit to a prospective policyholder's location? -
ANSWER-Evaluating the submission
Which one of the following statements is correct with regard to the submission
evaluation step in the underwriting process? - ANSWER-Government reports that
provide underwriting information include motor vehicle reports, criminal records, and
civil court records.
Paying close attention to hazards is an important consideration when reviewing an
underwriting submission. An underwriter should recognize a moral hazard, which is a
condition that: - ANSWER-Increases the likelihood that a person will intentionally
cause or exaggerate a loss.
An underwriter is working with a loss control representative on a new opportunity.
Given the complexity of the exposures, a physical survey is conducted by the loss
control representative, and a formal report is prepared. The report reveals that the
insured owns several unattended properties, and that they were unlocked when the
loss control representative conducted the survey. This failure to properly secure an
unattended building would be an indicator to the underwriter of which one of the
following types of hazard? - ANSWER-Morale
The percentage of insurance policies that an insurer has renewed is referred to as
its: - ANSWER-Retention ratio.
Which one of the following represents two nonfinancial measures that are used to
evaluate underwriting performance by focusing on underwriting actions? - ANSWER-
Retention ratio and hit ratio
Which one of the following lists the financial components used to calculate a
combined ratio? - ANSWER-Loss and loss adjustment expenses incurred, earned
and written premiums, and underwriting expenses incurred
, The retention ratio as an underwriting performance measure is the percentage of: -
ANSWER-Insurance policies renewed.
A situation that occurs because people with the greatest probability of loss are the
ones likely to purchase insurance is known as: - ANSWER-Adverse selection.
The purpose of underwriting is to: - ANSWER-Develop and maintain a profitable
book of business for the insurer.
A group of policies with a common characteristic, such as a territory or type of
coverage, or all policies written by a particular insurer, producer, or agency is
referred to as: - ANSWER-A book of business.
Tobias, a successful producer with Barnley's Insurance Company, is struggling with
an intricate quote on homeowners coverage for his insured, Hanna. Hanna not only
has substantial collections of guns and silverware, but also has a small farm located
at her premises. Which one of the following individuals from Barnley Insurance
Company could provide assistance and support to Tobias? - ANSWER-The line
underwriter
Which one of the following statements is correct with respect to line underwriters? -
ANSWER-Line underwriters can offer valuable technical assistance to an insured's
risk manager and to the producer responsible for the account.
The common distinction between line underwriters and staff underwriters is that line
underwriters: - ANSWER-Implement the steps in the underwriting process. Staff
underwriters assist underwriting management with formulating underwriting policy.
Specialty insurers such as those offering surety bonds, aviation insurance, and
livestock mortality insurance usually : - ANSWER-Centralize underwriting authority.
Depending on the type of insurance, insurers use automated underwriting systems
to: - ANSWER-Encode underwriting guidelines.
Which one of the following is a constraint to the development of underwriting policy?
- ANSWER-Financial capacity
Which one of the following is a constraint of underwriting policy? - ANSWER-
Reinsurance
Argot Stock Insurance Company's (Argot) net income is $1,000,000 and its average
owners' equity is $18,000,000. Argot's average policyholders' surplus is
$20,000,000. Using the GAAP formula, which one of the following is Argot's return
on equity? - ANSWER-1,000,000/18,000,000=5.56%
Which one of the following is determined by a company's underwriting policy? -
ANSWER-Composition of the insurer's book of business
Underwriting guidelines serve which one of the following purposes? - ANSWER-
Avoid duplication of effort
