WA SURPLUS LINES BROKER EXAM QUESTIONS AND CORRECT
ANSWERS PLUS RATIONALES | GRADED A+ | VERIFIED ANSWERS |
BRAND NEW VERSION!
Question 1
A large increase in an insurer's net premiums written could indicate that the insurer is:
A) Scaling back writings due to large losses.
B) Discontinuing certain lines of business.
C) Entering new lines of coverage or geographic locations.
D) Increasing its use of reinsurance.
E) Facing a downgrade in its financial rating.
Correct Answer: C) Entering new lines of coverage or geographic locations.
Rationale: A significant, rapid increase in premiums often signals an expansion of the insurer's
operations. This could be a sign of aggressive growth, which may introduce new risks that
need to be evaluated for stability.
Question 2
A large decrease in an insurer's net premiums written may indicate that the insurer is:
A) Entering new lines of business.
B) Trying to increase cash flow to pay current losses.
C) Discontinuing certain lines of business or scaling back due to large losses.
D) Decreasing its use of reinsurance.
E) Experiencing a period of high profitability.
Correct Answer: C) Discontinuing certain lines of business or scaling back due to large losses.
Rationale: A sharp decline in written premiums suggests a contraction of the business. This
could be a strategic decision to exit unprofitable lines or a necessary pullback in response to
poor underwriting results and a need to preserve capital.
Question 3
What is the usual or expected range for the annual change in an insurer's net premiums
written?
A) -10% to 10%
,B) -25% to 25%
C) -33% to 33%
D) -50% to 50%
E) 0% to 50%
Correct Answer: C) -33% to 33%
Rationale: The study guide identifies the usual range for this financial ratio as -33% to 33%.
Changes outside of this range are considered unusual and warrant further investigation by
regulators and brokers.
Question 4
In Washington, by what date must a surplus line broker file their annual premium tax return for
the previous calendar year?
A) January 1st
B) March 1st
C) April 15th
D) December 31st
E) June 30th
Correct Answer: B) March 1st
Rationale: The guide specifies that the premium tax return for the previous calendar year is
due by March 1st.
Question 5
Statutory accounting principles (SAP) for insurers are conservative and focus on solvency. What
does this mean regarding an insurer's assets?
A) All assets are counted at their market value.
B) Certain assets, like office furniture, are considered "non-admitted" because they cannot be
easily liquidated to pay claims.
C) Assets are valued based on their original purchase price.
D) Only cash and bonds are considered assets.
E) All assets are admitted, but are discounted by 50%.
,Correct Answer: B) Certain assets, like office furniture, are considered "non-admitted"
because they cannot be easily liquidated to pay claims.
Rationale: SAP is designed to provide the most conservative picture of an insurer's ability to
pay claims. Therefore, assets that are not readily available to pay losses (e.g., furniture,
fixtures, overdue premiums) are classified as non-admitted and are not included in the
policyholders' surplus.
Question 6
The Securities Valuation Office (SVO) of the NAIC assigns quality ratings to bonds held by
insurers. Bonds with a rating of NAIC __________ and higher are considered investment grade.
A) 1 & 2
B) 3 & 4
C) 5 & 6
D) Only 1
E) All ratings are investment grade.
Correct Answer: A) 1 & 2
Rationale: The SVO rating scale for bonds ranges from 1 (highest quality) to 6 (lowest quality).
Bonds designated as NAIC 1 and NAIC 2 are considered to be of investment-grade quality.
Question 7
In insurance accounting, what does the acronym IBNR stand for?
A) Insurance Bureau of National Reporting
B) Incurred But Not Reported
C) Insured's Basis for a Nuisance Refund
D) Investment Bonds and Notes Receivable
E) International Board of Non-admitted Reinsurance
Correct Answer: B) Incurred But Not Reported
Rationale: IBNR represents a reserve of funds that an insurer sets aside to pay for claims that
have already occurred (been "incurred") but have not yet been reported to the insurer. It is a
critical component of an insurer's loss reserves.
, Question 8
Is it true that an individual surplus line broker in Washington, who did not have an active
affiliation with a business entity, is required to file a zero-premium tax return even if they
transacted no business?
A) True
B) False
Correct Answer: A) True
Rationale: The study guide states this is TRUE. The requirement to file is based on holding the
license, not on transacting business. A zero-premium return must be filed to maintain
compliance.
Question 9
The combined ratio is a key measure of an insurer's underwriting profitability. How is it
calculated?
A) (Losses Incurred + Loss Adjustment Expenses) / Earned Premium
B) Written Premium / Earned Premium
C) Policyholders' Surplus / Net Premiums Written
D) Net Income / Total Assets
E) Incurred Losses / Policyholders' Surplus
Correct Answer: A) (Losses Incurred + Loss Adjustment Expenses) / Earned Premium
Rationale: The combined ratio measures the total outflow for claims and expenses against the
income from premiums. A ratio below 100% indicates an underwriting profit, while a ratio
above 100% indicates an underwriting loss.
Question 10
In an insurer's annual financial statement, what is the purpose of the "General Interrogatories"?
A) To list all of the insurer's investments.
B) To provide a summary of loss development.
C) To ask a series of general yes/no questions about the company's business practices,
management, and significant events.
ANSWERS PLUS RATIONALES | GRADED A+ | VERIFIED ANSWERS |
BRAND NEW VERSION!
Question 1
A large increase in an insurer's net premiums written could indicate that the insurer is:
A) Scaling back writings due to large losses.
B) Discontinuing certain lines of business.
C) Entering new lines of coverage or geographic locations.
D) Increasing its use of reinsurance.
E) Facing a downgrade in its financial rating.
Correct Answer: C) Entering new lines of coverage or geographic locations.
Rationale: A significant, rapid increase in premiums often signals an expansion of the insurer's
operations. This could be a sign of aggressive growth, which may introduce new risks that
need to be evaluated for stability.
Question 2
A large decrease in an insurer's net premiums written may indicate that the insurer is:
A) Entering new lines of business.
B) Trying to increase cash flow to pay current losses.
C) Discontinuing certain lines of business or scaling back due to large losses.
D) Decreasing its use of reinsurance.
E) Experiencing a period of high profitability.
Correct Answer: C) Discontinuing certain lines of business or scaling back due to large losses.
Rationale: A sharp decline in written premiums suggests a contraction of the business. This
could be a strategic decision to exit unprofitable lines or a necessary pullback in response to
poor underwriting results and a need to preserve capital.
Question 3
What is the usual or expected range for the annual change in an insurer's net premiums
written?
A) -10% to 10%
,B) -25% to 25%
C) -33% to 33%
D) -50% to 50%
E) 0% to 50%
Correct Answer: C) -33% to 33%
Rationale: The study guide identifies the usual range for this financial ratio as -33% to 33%.
Changes outside of this range are considered unusual and warrant further investigation by
regulators and brokers.
Question 4
In Washington, by what date must a surplus line broker file their annual premium tax return for
the previous calendar year?
A) January 1st
B) March 1st
C) April 15th
D) December 31st
E) June 30th
Correct Answer: B) March 1st
Rationale: The guide specifies that the premium tax return for the previous calendar year is
due by March 1st.
Question 5
Statutory accounting principles (SAP) for insurers are conservative and focus on solvency. What
does this mean regarding an insurer's assets?
A) All assets are counted at their market value.
B) Certain assets, like office furniture, are considered "non-admitted" because they cannot be
easily liquidated to pay claims.
C) Assets are valued based on their original purchase price.
D) Only cash and bonds are considered assets.
E) All assets are admitted, but are discounted by 50%.
,Correct Answer: B) Certain assets, like office furniture, are considered "non-admitted"
because they cannot be easily liquidated to pay claims.
Rationale: SAP is designed to provide the most conservative picture of an insurer's ability to
pay claims. Therefore, assets that are not readily available to pay losses (e.g., furniture,
fixtures, overdue premiums) are classified as non-admitted and are not included in the
policyholders' surplus.
Question 6
The Securities Valuation Office (SVO) of the NAIC assigns quality ratings to bonds held by
insurers. Bonds with a rating of NAIC __________ and higher are considered investment grade.
A) 1 & 2
B) 3 & 4
C) 5 & 6
D) Only 1
E) All ratings are investment grade.
Correct Answer: A) 1 & 2
Rationale: The SVO rating scale for bonds ranges from 1 (highest quality) to 6 (lowest quality).
Bonds designated as NAIC 1 and NAIC 2 are considered to be of investment-grade quality.
Question 7
In insurance accounting, what does the acronym IBNR stand for?
A) Insurance Bureau of National Reporting
B) Incurred But Not Reported
C) Insured's Basis for a Nuisance Refund
D) Investment Bonds and Notes Receivable
E) International Board of Non-admitted Reinsurance
Correct Answer: B) Incurred But Not Reported
Rationale: IBNR represents a reserve of funds that an insurer sets aside to pay for claims that
have already occurred (been "incurred") but have not yet been reported to the insurer. It is a
critical component of an insurer's loss reserves.
, Question 8
Is it true that an individual surplus line broker in Washington, who did not have an active
affiliation with a business entity, is required to file a zero-premium tax return even if they
transacted no business?
A) True
B) False
Correct Answer: A) True
Rationale: The study guide states this is TRUE. The requirement to file is based on holding the
license, not on transacting business. A zero-premium return must be filed to maintain
compliance.
Question 9
The combined ratio is a key measure of an insurer's underwriting profitability. How is it
calculated?
A) (Losses Incurred + Loss Adjustment Expenses) / Earned Premium
B) Written Premium / Earned Premium
C) Policyholders' Surplus / Net Premiums Written
D) Net Income / Total Assets
E) Incurred Losses / Policyholders' Surplus
Correct Answer: A) (Losses Incurred + Loss Adjustment Expenses) / Earned Premium
Rationale: The combined ratio measures the total outflow for claims and expenses against the
income from premiums. A ratio below 100% indicates an underwriting profit, while a ratio
above 100% indicates an underwriting loss.
Question 10
In an insurer's annual financial statement, what is the purpose of the "General Interrogatories"?
A) To list all of the insurer's investments.
B) To provide a summary of loss development.
C) To ask a series of general yes/no questions about the company's business practices,
management, and significant events.
