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AU 60 MISSED PRACTICE TEST QUESTIONS
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AU 60 MISSED PRACTICE TEST QUESTIONS
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AU 60 MISSED PRACTICE TEST QUESTIONSWhen insuring a partnership, it is essential to identify which one of the following on the
policy declaration page?
Choose one answer.
A. The partnership
B. All partners
C. General partners only
D. All partners and their share of the partnership - Answers- A. The partnership
If a company's inventory turnover ratio is higher than the industry benchmark, it
indicates that
Choose one answer.
A. Its inventory is becoming obsolete compared to that of its competitors.
B. The company is holding its inventory longer than its competitors.
C. The company is selling its inventory more quickly than its competitors.
D. The company's inventory is generating higher costs than that of its competitors. -
Answers- C. The company is selling its inventory more quickly than its competitors.
An insurer must decide what provision for profit and contingencies should be included in
the rate and should consider the overall desired rate of return, including likely returns
from investment income versus
Choose one answer.
A. Policyholder surplus.
B. Underwriting profit.
C. Loss reserve amounts.
D. Loss adjustment expenses. - Answers- B. Underwriting profit.
The amount included in the insurance rate to protect insurers against the possibility that
actual claims or expenses will exceed projections is referred to as
Choose one answer.
A. The prospective loss costs.
,B. The expense factor.
C. The loading for profits and contingencies.
D. The claims and eventualities factor. - Answers- C. The loading for profits and
contingencies.
Underwriting pricing activities usually include all of the following, EXCEPT:
Choose one answer.
A. Account classification
B. Rating
C. Application of premium modification plans
D. Forecasting - Answers- D. Forecasting
Insurance Company's actuary has calculated the pure premium for its automobile
insurance line as $67. Fixed expenses for the line are $25 per exposure unit, and the
loading for profit and contingencies is 7%. Using the pure premium ratemaking method
and rounding to the nearest whole dollar, which one of the following is the rate per
exposure unit?
Choose one answer.
A. $86
B. $99
C. $106
D. $115 - Answers- B. $99
Using the pure premium ratemaking method, the rate per exposure unit equals the pure
premium plus the expenses per exposure unit, divided by 1 minus the profit and
contingencies factor. ($67 + $25)/(1 - 0.07) = $99
Insurance classification systems group risks that share similar characteristics and that
usually
Choose one answer.
A. Have the same size exposure base.
B. Have the same likelihood of loss.
,C. Generate similar rates and premiums.
D. Are not subject to catastrophic loss. - Answers- B. Have the same likelihood of loss.
Financial statements
Choose one answer.
A. Are not useful to insurance professionals because of the limited nature of information
provided.
B. Can be used by agents and brokers to assess coverage needs.
C. Are of no use to underwriters or claim representatives.
D. Can be useful when read individually but fail to provide a comprehensive picture
when viewed together. - Answers- B. Can be used by agents and brokers to assess
coverage needs.
Which one of the following is determined by a company's underwriting policy?
Choose one answer.
A. The underwriting authority the insurer grants its producers
B. Composition of the insurer's book of business
C. The market pursued by the insurer
D. The rating organization to which the insurer will belong - Answers- B. Composition of
the insurer's book of business
Which one of the following statements is true regarding ratemaking in different types of
insurance?
Choose one answer.
A. Most losses from catastrophic events, such as hurricanes, are included in ratemaking
data in the affected states.
B. Trending of losses in fire insurance is generally restricted to claim severity.
C. The experience period used for property causes of loss other than fire is usually five
years or less.
D. Applying loss development factors to data is critical when claims settle quickly and
loss reserves are relatively small. - Answers- B. Trending of losses in fire insurance is
generally restricted to claim severity.
, Which one of the following types of individual rating plans can be used by medium to
large insureds in combination with risk control and allows the insured to manage its
cash flow by avoiding upfront payments?
Choose one answer.
A. Schedule rating plan
B. Large deductible plan
C. Individual risk premium modification plan
D. Expense modification plan - Answers- B. Large deductible plan
ABC Insurance is considering entering new states as part of its growth plan. The
executives of ABC decide not to pursue new business in low-income areas of states and
provide underwriters with a map indicating the areas from which they are not to accept
applications. This position likely violates regulations that
Choose one answer.
A. Constrain insurers' ability to accept, modify, or decline loss exposures.
B. Limit allowable classifications.
C. Restrict the timing and conditions of coverage cancellations and nonrenewals.
D. Specify policy terms and conditions. - Answers- A. Constrain insurers' ability to
accept, modify, or decline loss exposures.
Insurers do not have to perform mid-term pricing on composite-rated accounts because
Choose one answer.
A. Loss modification factors are applied to the initial premium.
B. Changes in exposure will be discovered by premium audit at the end of the policy
term.
C. A premium base in the rating manual is used to price the entire account.
D. Composite rating is a paid loss retrospective plan. - Answers- B. Changes in
exposure will be discovered by premium audit at the end of the policy term.
Individual rating plans use different approaches to modify the rate for an account. Which
one of the following types of individual rating plans is used to modify the premium of
liability insurance policies based on risk characteristics such as condition of premises
and equipment, and safety programs?
Choose one answer.
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