ASLI 320 TEST 3 QUESTIONS WITH VERIFIED ANSWERS
To protect the public, surplus lines laws in each state restrict surplus lines licensees to
placing coverage only with insurers that satisfy specific criteria. The surplus lines
licensees must verify which one of the following for each nonadmitted insurer providing
coverage? - Answers - a. Their claim-payment and customer service complaint records
B. Their financial strength and viability
c. Their history and mission statement
d. Their past and projected revenue statements
Which one of the following is a reason why increased limits factors in general liability
insurance are large? - Answers - a. Data credibility is higher in upper layers.
b. Large liability losses settle quickly.
c. Reinsurance is not used to provide high limits.
D. Loss variability is greater in upper layers.
Which one of the following statements is correct with respect to taxation and surplus lines
insurers? - Answers - A. Surplus lines insurers consider tax rates when determining what
products to offer in which states.
b. Surplus lines intermediaries are prohibited from collecting premium taxes in most
states.
c. Surplus lines insurers include taxes in ratemaking formulas and pay taxes directly to the
states in which they write business.
d. The taxes paid by surplus lines insurers are generally lower than those paid by admitted
insurers in the same state.
Insurer A has calculated its actual loss ratio to be 54 percent. The expected loss ratio was
60 percent. Using the loss ratio ratemaking method, which one of the following statements
is true? - Answers - a. There is not enough information presented to calculate the
indicated rate change.
b. A ten percent (10%) increase in rates is indicated.
c. The loss ratio ratemaking method does not indicate that a rate change is needed.
D. A ten percent (10%) decrease in rates is indicated.
Situational analysis is one element of a marketing plan. Which one of the following best
describes situational analysis? - Answers - a. It evaluates an insurer's expertise in a
potential new product area.
B. It examines the marketplace, competition, critical success factors, and required
resources.
c. It monitors customers to identify changing needs that must be addressed.
d. It determines the potential size of the market for a new product.
Defending liability claims through litigation can be a very long and expensive process.
Arbitration is a common forum for settling claims outside the traditional court system.
Which one of the following statements is correct regarding arbitration? - Answers - a.
Solutions are proposed in arbitration to help the parties settle.
b. Only one insured and one insurer can be involved in arbitration.
C. Someone other than the insurer and the claimant decides the case in arbitration.
d. The arbitrator's decision is always binding.
Which one of the following is true regarding the administration of the Insurance Regulatory
Information System (IRIS)? - Answers - a. If the insurer has financial ratios that are inside
, predetermined norms, IRIS identifies the company for regulatory attention.
b. If an insurer cannot be rehabilitated, the state's guaranty fund may be available to
increase the effects of the insurer insolvency.
C. If regulators determine that an insurer is insolvent, the state insurance department
places it in receivership.
d. Under a special provision in state licensing laws, state regulators are empowered to
completely take over an insurer at any time.
Paid Losses, Loss Reserves, and Incurred Loses for Hypothetical Auto Liability Insurance
as of the End of Year 3:
(1) (2) (3)Year Paid Losses Loss Reserves Incurred Losses1 $11,000,000 $ 0
$11,000,0002 8,000,000 3,000,000 11,000,0003 3,000,000 8,000,000 11,000,000Total
$22,000,000 $11,000,000 $33,000,000
Given this data, which one of the following statements is true? - Answers - a. Loss
reserves are 50 percent of the incurred losses for all three years.
b. Incurred losses for Year 3 include the lowest reserves of any year.
C. Loss reserves do not exist for Year 1 since all losses have been paid.
d. Paid losses are 33 percent of the incurred losses for all three years.
The National Association of Insurance Commissioners (NAIC) adopted the Ten Guiding
Principles, which states were to use to regulate surplus lines insurance. Which one of the
following statements correctly describes an effect of the Ten Guiding Principles? -
Answers - A. The surplus lines licensee had to file affidavits and tax returns and to
maintain transaction records.
b. Surplus lines insurers had to be licensed in each state in which they wrote business.
c. Alien surplus lines insurers were authorized to write insurance in the United States.
d. Insureds could place coverage in the nonadmitted market in order to obtain a lower
premium.
The state advisory organization has developed a new homeowners form, which increases
the personal property limits for guns, silverware, jewelry, and boats. Jancy Insurance
Company is considering modifying this form for its own use. Which one of the following of
Jancy's staff would be involved in this research and development of this new form? -
Answers - a. Clara, the underwriting manager
b. Antonia, the accounting manager
C. Emma, the staff underwriter
d. Merve, the claims manager
Owners of reciprocal insurance exchanges are also known as - Answers - a.
Correspondents.
b. Names.
C. Subscribers.
d. Policyholders.
Which one of the following is a disadvantage of the accident-year ratemaking data
collection method? - Answers - A. The loss and premium data analyzed with this method
are only tied to the year of the accident.
b. Accident-year data is the least accurate of the three ratemaking data collection
methods.
c. Accounting records, which are utilized with this method, do not contain exposure unit
data.
d. There will be longer delays in gathering statistics with this method verses the others.
Damages for the loss of the ability to bear children are a form of - Answers - A. General
To protect the public, surplus lines laws in each state restrict surplus lines licensees to
placing coverage only with insurers that satisfy specific criteria. The surplus lines
licensees must verify which one of the following for each nonadmitted insurer providing
coverage? - Answers - a. Their claim-payment and customer service complaint records
B. Their financial strength and viability
c. Their history and mission statement
d. Their past and projected revenue statements
Which one of the following is a reason why increased limits factors in general liability
insurance are large? - Answers - a. Data credibility is higher in upper layers.
b. Large liability losses settle quickly.
c. Reinsurance is not used to provide high limits.
D. Loss variability is greater in upper layers.
Which one of the following statements is correct with respect to taxation and surplus lines
insurers? - Answers - A. Surplus lines insurers consider tax rates when determining what
products to offer in which states.
b. Surplus lines intermediaries are prohibited from collecting premium taxes in most
states.
c. Surplus lines insurers include taxes in ratemaking formulas and pay taxes directly to the
states in which they write business.
d. The taxes paid by surplus lines insurers are generally lower than those paid by admitted
insurers in the same state.
Insurer A has calculated its actual loss ratio to be 54 percent. The expected loss ratio was
60 percent. Using the loss ratio ratemaking method, which one of the following statements
is true? - Answers - a. There is not enough information presented to calculate the
indicated rate change.
b. A ten percent (10%) increase in rates is indicated.
c. The loss ratio ratemaking method does not indicate that a rate change is needed.
D. A ten percent (10%) decrease in rates is indicated.
Situational analysis is one element of a marketing plan. Which one of the following best
describes situational analysis? - Answers - a. It evaluates an insurer's expertise in a
potential new product area.
B. It examines the marketplace, competition, critical success factors, and required
resources.
c. It monitors customers to identify changing needs that must be addressed.
d. It determines the potential size of the market for a new product.
Defending liability claims through litigation can be a very long and expensive process.
Arbitration is a common forum for settling claims outside the traditional court system.
Which one of the following statements is correct regarding arbitration? - Answers - a.
Solutions are proposed in arbitration to help the parties settle.
b. Only one insured and one insurer can be involved in arbitration.
C. Someone other than the insurer and the claimant decides the case in arbitration.
d. The arbitrator's decision is always binding.
Which one of the following is true regarding the administration of the Insurance Regulatory
Information System (IRIS)? - Answers - a. If the insurer has financial ratios that are inside
, predetermined norms, IRIS identifies the company for regulatory attention.
b. If an insurer cannot be rehabilitated, the state's guaranty fund may be available to
increase the effects of the insurer insolvency.
C. If regulators determine that an insurer is insolvent, the state insurance department
places it in receivership.
d. Under a special provision in state licensing laws, state regulators are empowered to
completely take over an insurer at any time.
Paid Losses, Loss Reserves, and Incurred Loses for Hypothetical Auto Liability Insurance
as of the End of Year 3:
(1) (2) (3)Year Paid Losses Loss Reserves Incurred Losses1 $11,000,000 $ 0
$11,000,0002 8,000,000 3,000,000 11,000,0003 3,000,000 8,000,000 11,000,000Total
$22,000,000 $11,000,000 $33,000,000
Given this data, which one of the following statements is true? - Answers - a. Loss
reserves are 50 percent of the incurred losses for all three years.
b. Incurred losses for Year 3 include the lowest reserves of any year.
C. Loss reserves do not exist for Year 1 since all losses have been paid.
d. Paid losses are 33 percent of the incurred losses for all three years.
The National Association of Insurance Commissioners (NAIC) adopted the Ten Guiding
Principles, which states were to use to regulate surplus lines insurance. Which one of the
following statements correctly describes an effect of the Ten Guiding Principles? -
Answers - A. The surplus lines licensee had to file affidavits and tax returns and to
maintain transaction records.
b. Surplus lines insurers had to be licensed in each state in which they wrote business.
c. Alien surplus lines insurers were authorized to write insurance in the United States.
d. Insureds could place coverage in the nonadmitted market in order to obtain a lower
premium.
The state advisory organization has developed a new homeowners form, which increases
the personal property limits for guns, silverware, jewelry, and boats. Jancy Insurance
Company is considering modifying this form for its own use. Which one of the following of
Jancy's staff would be involved in this research and development of this new form? -
Answers - a. Clara, the underwriting manager
b. Antonia, the accounting manager
C. Emma, the staff underwriter
d. Merve, the claims manager
Owners of reciprocal insurance exchanges are also known as - Answers - a.
Correspondents.
b. Names.
C. Subscribers.
d. Policyholders.
Which one of the following is a disadvantage of the accident-year ratemaking data
collection method? - Answers - A. The loss and premium data analyzed with this method
are only tied to the year of the accident.
b. Accident-year data is the least accurate of the three ratemaking data collection
methods.
c. Accounting records, which are utilized with this method, do not contain exposure unit
data.
d. There will be longer delays in gathering statistics with this method verses the others.
Damages for the loss of the ability to bear children are a form of - Answers - A. General
