AU 60 Final Exam Practice Questions and Answers All Correct 2024 Update
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Course
AU 60
Institution
AU 60
AU 60 Final Exam Practice Questions and Answers All Correct 2024 Update
Which one of the following statements is correct with respect to market conduct examinations? - Answer The Department of Insurance (DOI) may suspend or revoke the insurer's certificate of authority if it finds that an insure...
AU 60 Final Exam Practice Questions
and Answers All Correct 2024 Update
Which one of the following statements is correct with respect to market conduct
examinations? - Answer ✔ The Department of Insurance (DOI) may suspend or revoke
the insurer's certificate of authority if it finds that an insurer has violated a law.
Which one of the following insurer representatives often meets with the insured in
difficult circumstances, but can provide the underwriter with valuable information? -
Answer ✔ Claim representative
An underwriter is attempting to conduct ratio analysis on a company. The underwriter
notices that the company has $3 million in total assets, $1 million in current assets, $2
million in total liabilities, and $1 million in current liabilities. Which one of the following
conclusions can the underwriter reach by calculating the company's debt-to-assets
ratio? - Answer ✔ Debt-to-assets ratio = Total liabilities ÷ total assets. $2 million ÷ $3
million = .667. A ratio over .5 indicates financing mostly by debt. The company's assets
are financed mostly through debt.
An underwriter is trying to determine XYZ Manufacturing's efficiency using the accounts
receivable (A/R) turnover ratio. XYZ's income statement shows $10 million in sales (half
of which is attributable to credit sales) and the balance sheet shows $200,000 in A/R.
What is XYZ's accounts receivable turnover ratio? - Answer ✔ The A/R turnover ratio
uses the sales attributed to credit sales; thus, $5,000,000/$200,000 = 25 times.
Wrap-ups do not usually include which one of the following coverages? - Answer ✔
Auto
Lucy is analyzing a company's application for commercial insurance coverage. She is
considering the loss exposures associated with the company's location and how many
other businesses her company insures in that geographical area. Lucy is questioning
whether the risk exceeds the insurer's risk appetite and if accepting this company with
affect the overall book of business. Which one of the following types of geographical
data is Lucy analyzing during this stage of the underwriting process? - Answer ✔ Policy
in force data
In underwriting an account, all of the following statements are true, EXCEPT: - Answer
✔ Underwriters need to be familiar with the rate applicable to each classification.
Insurer People's Protection raised its Country Estate policies' rate by three percent in a
declining economic market, which created huge profits for People's Protection. The next
, year, hoping for additional profits, the insurer increased rates only two percent
maintaining that a five percent increase over two years was reasonable, because
country estate owners' insurance products were designed to protect a wealthier
customer who could afford to pay higher premiums.
In which one of the following ways would People's Protection's second set of rates at
two percent be considered as excessive? - Answer ✔ If the rates generate an
unreasonable profit for People's Protection
Josh received an all lines submission for a manufacturing risk that seemed to have
severe exposure for multiple lines. He had limited knowledge of the industry, so he
decided to consult with an external expert. After gaining additional knowledge from the
subject-matter expert, Josh decided to decline the submission for all lines. This is an
example of an underwriter using an external stakeholder to help do which one of the
following? - Answer ✔ Determine the appropriate treatment technique
The most important thing a field underwriter does is - Answer ✔ Evaluating new
submissions and renewal underwriting.
Common size statements are frequently used during vertical analysis. Which one of the
following is true regarding common size statements? - Answer ✔ Common size
statements are good for inter-company comparisons because they correct for
differences in company size.
An underwriter is attempting to conduct ratio analysis on a company. The underwriter
notices that the company has $8 million in sales, $5 million in gross profit, and $2 million
in net income. Which one of the following conclusions can the underwriter reach by
calculating the company's net profit margin? - Answer ✔ Twenty-five percent of the
company's sales is left after all expenses are paid.
Which one of the following best describes the components included in an insurance
rate? - Answer ✔ Amounts to pay prospective loss costs, loss adjustment expenses,
other expenses, and an amount for profits and contingencies
The common distinction between field underwriters and corporate underwriters is that
line underwriters - Answer ✔ Implement the steps in the underwriting process.
Corporate underwriters assist underwriting management with formulating underwriting
policy.
Which one of the following statements is correct with regard to regulation and insurers'
operations? - Answer ✔ Solvency regulation indirectly influences underwriting by limiting
new business for insurers.
Underwriting regulations seek to ensure correct classification of insureds because -
Answer ✔ Misclassification can result in inadequate premiums and drain an insurer's
surplus.
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