Assignment 8 - Constraints in Establishing Underwriting Policy

Which one of the following is a constraint to the development of underwriting policy? Select one: A. Financial capacity B. Market research C. Underwriting audits D. Underwriting guides

A. Financial capacity

Which one of the following is a major constraint of underwriting policy? Select one: A. Economy B. Reinsurance C. Competition D. Underwriting management

B. Reinsurance

Argot Stock Insurance Company's (Argot) net income is $1,000,000 and its average owners' equity is $18,000,000. Argot's average policyholders' surplus is $20,000,000. Using the GAAP formula, which one of the following is Argot's return on equity? Select one: A. 5% B. 5.56% C. 18% D. 20%

B. 5.56%

Argot Stock Insurance Company's (Argot) net income is $1,000,000 and its average owners' equity is $16,500,000. Argot's average policyholders' surplus is $20,000,000. Using the GAAP approach, which one of the following is Argot's return on equity? Select one: A. 5% B. 6% C. 18% D. 20%

B. 6%

Which one of the following financial ratios is key for evaluating insurer solvency? Select one: A. Retention ratio B. Premium to surplus ratio C. Expense ratio D. Loss ratio

B. Premium to surplus ratio

Which one of the following is determined by a company's underwriting policy? Select one: A. The market pursued by the insurer B. The underwriting authority the insurer grants its producers C. Composition of the insurer's book of business D. The rating organization to which the insurer will belong

C. Composition of the insurer's book of business

An insurer decides to discontinue writing a class of workers compensation insureds because losses on the business have exceeded expectations. Instead, in an effort to maximize its return on equity, the insurer plans to use its resources to increase the volume of accounts in an area that offers more promising returns. This need to redirect the focus for desired business is an example of an underwriting constraint due to Select one: A. Adherence to underwriting guidelines. B. Regulation. C. Audit compliance. D. Financial capacity.

D. Financial capacity.

Which one of the following is a constraint of underwriting policy? Select one: A. Economy B. Underwriting management C. Competition D. Reinsurance

D. Reinsurance

All of the following statements are true regarding the factors affecting the formation of an insurer's underwriting policy, EXCEPT: Select one: A. The availability and cost of adequate reinsurance can influence underwriting policy. B. Insurers are subject to penalties from the states if they deviate from filed forms or rates. C. Return-on-equity thresholds guide insurers in deciding where to allocate capital. D. The higher an insurer's premium-to-surplus ratio, the greater its ability to expand premium writings.

D. The higher an insurer's premium-to-surplus ratio, the greater its ability to expand premium writings.