AU 60 Practice Exam Questions and Answers All Correct (Newest Version)
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Course
AU 60
Institution
AU 60
AU 60 Practice Exam Questions and Answers All Correct (Newest Version)
Which one of the following external sources of underwriting information is more likely to be used by an underwriter in the pricing phase, than in risk-selection decisions?
Select one:
A. Insurance advisory organizations
B. A...
AU 60 Practice Exam Questions
and Answers All Correct (Newest
Version)
Which one of the following external sources of underwriting information is more likely to
be used by an underwriter in the pricing phase, than in risk-selection decisions?
Select one:
A. Insurance advisory organizations
B. Applicant's Web site
C. Financial reporting service
D. Government reports - Answer ✔ A. Insurance advisory organizations
Alex has been a commercial underwriter for two years. He has received a multi-lines
submission for a company in an industry that he is not very familiar with. Which one of
the following external resources would give Alex a general description of the industry's
operations and the level of hazard by line of insurance?
Select one:
A. Fire Protection Handbook
B. Best's Underwriting Guide
C. Dun & Bradstreet Report
D. Scopes Manual - Answer ✔ B. Best's Underwriting Guide
Which one of the following external sources of underwriting information should be used
to confirm information, rather than as a primary source of the underwriting decision?
Select one:
A. Court records
B. Motor vehicle reports
C. Dun & Bradstreet reports
D. Insureds' websites - Answer ✔ D. Insureds' websites
Which one of the following external sources of underwriting information is more likely to
be used by an underwriter in the pricing phase, than in risk-selection decisions?
Select one:
A. Insurance advisory organizations
B. Applicant's Web site
C. Financial reporting services
D. Government reports - Answer ✔ A. Insurance advisory organizations
Which one of the following statements about the balance sheet is correct?
Select one:
,A. Change in asset and liability valuation from historical cost to fair value has no effect
on the value of shareholders' equity.
B. The balance sheet contains important financial information about net worth and
assets, both which indicate the source of an organization's funding.
C. Net worth is positive whenever the value of assets exceeds the value of liabilities and
negative if the value of liabilities exceeds the value of assets.
D. The balance sheet must always balance, but an exception is that the balance sheet
will not balance if net worth is a negative number. - Answer ✔ C. Net worth is positive
whenever the value of assets exceeds the value of liabilities and negative if the value of
liabilities exceeds the value of assets.
What are the three sections of the statement of cash flows? - Answer ✔ - Cash from
operations
- Cash from investments
- Cash from financing
A company's common-size statement lists two years, 20X3 and 20X4. In 20X3, the
inventories line was five percent, and in 20X4 the inventories line was seven percent.
Which one of the following could an underwriter infer from this information?
Select one:
A. Inventories fell by two percent
B. The percentage of inventories to total assets increased
C. Inventories increased by two percent
D. Percent of inventories changed with inflation - Answer ✔ B. The percentage of
inventories to total assets increased
Underwriters must be careful when comparing financial statements using trend analysis
because false impressions about a company can be created. Which one of the following
might cause an underwriter to have a false impression about a company's health
because of an inventories increase on the financial statement?
Select one:
A. The inventory increase was caused by robust sales and growth.
B. The inventory increase was caused by obsolete or damaged inventory.
C. The inventory increase was caused by a change in the inventory valuation method.
D. The inventory increase was caused by a decline in seasonal sales. - Answer ✔ C.
The inventory increase was caused by a change in the inventory valuation method.
An underwriter is conducting vertical analysis using a common-size balance sheet for
the past two fiscal years. The underwriter notices the figure listed under "net
receivables" is 11.5 percent for the current fiscal year compared to 9.5 percent for the
prior fiscal year. These figures indicate that
Select one:
A. The company's net sales increased by 2 percent.
B. The balance of the company's net receivables increased by 2 percent.
C. The company efficiency has decreased by 2 percent.
, D. The percentage of net receivables to total assets increased by 2 percent. - Answer ✔
D. The percentage of net receivables to total assets increased by 2 percent.
Common size statements are frequently used during vertical analysis. Which one of the
following is true regarding common size statements?
Select one:
A. Common size statements are good for inter-company comparisons because they
correct for differences in company size.
B. Common size statements are not able to account for inflation when analyzing figures
over time.
C. Common size statements typically use a competitor's or industry average as the
base amount for percentage calculations.
D. Common size statements can be used to show percentage increases or decreases in
figures over time. - Answer ✔ A. Common size statements are good for inter-company
comparisons because they correct for differences in company size.
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?
A. Corporate underwriter
B. The actuary
C. The claims representative
D. The field underwriter - Answer ✔ D. The field underwriter
Which one of the following is the most common use of predictive modeling in the
underwriting of small commercial accounts?
Select one:
A. Risk analysis
B. Risk selection
C. Coverage proposal
D. Rating - Answer ✔ D. Rating
As a commercial lines underwriter, William would spend many hours reviewing and
summarizing the loss runs that were part of a new business application. He can now
rely on a computer to digitalize and summarize those loss runs. This is an example of
how underwriting has been transformed by which one of the following advancements in
technology?
Select one:
A. Smart products
B. Machine learning
C. Internet of Things
D. Wireless sensor networks - Answer ✔ B. Machine learning
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