Property & Casualty Insurance Fundamentals

Allied Insurer has a $450,000 xs $150,000 per risk excess of loss reinsurance treaty with Omega Reinsurer. An insured with a limit of $1,000,000 sustains the following losses: Loss 1: $125,000 Loss 2: $500,000 Loss 3: $850,000 How much will Omega Reinsurer pay for Loss 1? A. $0 B. $31,250 C. $56,250 D. $125,000

A. $0

Which one of the following is true regarding basic claims terminology? A. A key step in the actuarial process of estimating unpaid claims is the projection of ultimate claims. B. The term "emergence" is used to refer to the reporting of claims at a certain point in time. C. A differentiation can be made between claims (meaning number of claims) and claims counts (meaning dollar values). D. Case outstanding includes future development on reported claims.

A. A key step in the actuarial process of estimating unpaid claims is the projection of ultimate claims.

Any condition that presents a possibility of loss, whether or not an actual loss occurs best defines A. A loss exposure. B. A moral hazard. C. Hazard risk. D. Enterprise risk.

A. A loss exposure. Any condition that presents a possibility of loss, whether or not an actual loss occurs best defines a loss exposure.

Which one of the following is a financial measure of underwriting performance? A. Combined ratio B. Retention ratio C. Line of business mix D. Hit ratio

A. Combined ratio

With most types of property insurance policies, premium credits tend to encourage the use of A. Medium-sized deductibles. B. Percentage deductibles. C. Small deductibles. D. Large-sized deductibles.

A. Medium-sized deductibles.

In which one of the following sections of an insurer's financial statement would forward-looking information be included? A. Notes and disclosures B. The balance sheet C. The income statement D. The cash flow statement

A. Notes and disclosures

Which one of the following is a main cause of depreciation? A. Obsolescence B. Appreciation C. Latent defect D. Age

A. Obsolescence

Jean is the Risk Manager for a Fortune 1000 company. Her CFO has tasked her to analyze vulnerabilities in the firm's supply chain. The adequacy of suppliers to meet an organization's needs would be an example of which one of the following types of risk? A. Operational risk B. Strategic risk C. Financial risk D. Operating risk

A. Operational risk

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

A. Reinsurance

An insurance policy that requires the payment of a final premium based on losses incurred under the contract is referred to as a(n) A. Retrospectively rated policy. B. Reinstatement premium policy. C. Installment premium policy. D. Interim premium policy.

A. Retrospectively rated policy.

Anna is doing market research on the food industry. She has segmented the market into wholesale and retail operations, and further segmented the wholesale market into meats, fruits and vegetables, dairy, bakery, and non-perishables. Which one of the following would be considered the best example of a niche market? A. Wholesale bakery B. Retail grocery store C. Wholesale grocery supplier D. Food warehousing

A. Wholesale bakery

Jamal flew from his home in New York to California for a vacation. While there, he rented a car. Jamal declined all of the optional coverages that were offered to him at the rental agency. While driving the rental car, Jamal was at fault in a collision with a truck. The repairs to the rental car will cost $2,000. Jamal's Personal Auto Policy (PAP) has a $250 other than collision deductible and a $500 collision deductible. What amount will Jamal's insurer pay for the loss? A. $0 B. $1,500 C. $1,750 D. $2,000

B. $1,500 $2,000 - $500 deductible = $1,500. Part D coverages apply to a "non-owned auto" unless it is one that the insured regularly drives.

An insurer sold a commercial policy to Twinkle Lighting Company on March 1, 2010 with an effective date of May 1, 2010. Twinkle Lighting did not submit the premium of $240 until July 1, 2010. Under the deferral-matching approach to premium accounting, the unearned premium as of June 30, 2010 would be A. $0 B. $200 C. $220 D. $240

B. $200 $240/12 Months = $20/Month July 1, 2010 is 2 months after the Effective Date $240 - $20 - $20 = $200

Brookgreen Insurance has a 40% quota share treaty with Cypress Reinsurance. Policy A has a limit of $50,000, a premium of $2,000, and a loss of $5,000. How much of the premium will Cypress Reinsurance receive? A. $200 B. $800 C. $1,000 D. $1,200

B. $800

Hanna is an actuary for Glaston Insurance. The paid claims development triangle for Glaston's workers compensation book is below. Paid Claims Development Triangle Paid Claims ($000) as of (months) Accident Year 12 24 36 48 60 20X4 3,500 12,250 34,300 58,310 87,465 20X5 3,660 13,908 62,586 87,620 96,382 20X6 3,800 13,680 38,304 65,120 20X7 4,950 20,790 45,838 20X8 3,850 15,400 20X9 4,200 One accident year stands out to Hanna for the significant development in paid losses between the 24 month valuation and the 36 month valuation. Hanna's observation applies to which one of the following accident years? A. 20X4 B. 20X5 C. 20X6 D. 20X7

B. 20X5

Day-to-day regulation of insurance falls upon A. Courts. B. Administrative agencies. C. State governments. D. Legislative bodies.

B. Administrative agencies.

After using the DICE method to determine whether the claim is covered, the insurer must determine the A. Exclusions. B. Amount payable. C. Conditions of coverage. D. Cause of loss.

B. Amount payable.

To which one of these does the Coverage A Pollution exclusion not apply? A. Property damage resulting from pollution incidents B. Bodily injury caused by smoke from a hostile fire C. Cleanup costs resulting from pollution incidents D. Bodily injury resulting from pollution incidents

B. Bodily injury caused by smoke from a hostile fire

The reserve representing the estimated deficiency in the aggregate of case reserves for known claims are known as A. Case reserves. B. Bulk reserves. C. Salvage reserves. D. Loss reserve accounts.

B. Bulk reserves.

Which field would most likely be found in a claims database but not in a policy database? A. Policy identifier B. Case reserve C. Relevant dates D. Risk identifier

B. Case reserve

The two principle liability accounts on an insurer's balance sheet are A. Earned premium and loss reserves. B. Claim liabilities and unearned premium. C. Deferred acquisition costs and reinsurance recoverables. D. Unpaid adjusting expenses and reinsurance receivables.

B. Claim liabilities and unearned premium.

Additional case reserves are most common for which one of the following types of claims? A. Claims for positive reserve amounts. B. Claims under assumed reinsurance contracts. C. Claims for salvage recoveries. D. Claims for reserve liabilities.

B. Claims under assumed reinsurance contracts. Assumed Reinsurance - that portion of a risk that a reinsurer accepts from an original insurer (also known as a "primary" insurer) in return for a stated premium.

Which one of the following statements is true if the named insured is an individual under the Commercial General Liability (CGL) Coverage Form? A. His or her spouse is also an insured only when specifically listed on the declarations page. B. Coverage applies only to claims arising from the conduct of a business owned solely by the named insured. C. Both the named insured and spouse are covered for their non-business activities. D. Coverage is provided for any business owned by the insured's spouse.

B. Coverage applies only to claims arising from the conduct of a business owned solely by the named insured.

Joshua is a claim representative who has been assigned an auto liability claim. To determine whether his company's Personal Auto Policy (PAP) provides coverage for the claim, Joshua should first review the policy's A. Exclusions. B. Declarations. C. Conditions. D. Insuring Agreement.

B. Declarations.

An insured covers his owned auto with more than one Personal Auto Policy (PAP), each from a different insurer. In the event of a claim for medical payments coverage, A. The first insurer to be placed on notice of the claim pays the entire claim. B. Each insurer pays its pro rata share based on the proportion that its limit of liability bears to the total of applicable limits. C. Each insurer pays equal shares. D. The older insurance policy becomes primary and the newer insurance policy becomes excess.

B. Each insurer pays its pro rata share based on the proportion that its limit of liability bears to the total of applicable limits.

Jane wrote a book and copyrighted the material. The copyright on Jane's book is A. Physical property. B. Intangible property. C. Tangible property. D. Real property.

B. Intangible property.

Which one of the following is a specific characteristic of relevant accounting information? A. It is consistent. B. It is timely. C. It is comparable. D. It is widely disseminated.

B. It is timely.

Which one of the following is correct with respect to the Increased Cost of Construction additional coverage of the Building and Personal Property Coverage Form (BPP)? A. It does not apply if the replacement cost option has been selected. B. It provides a small amount of insurance to cover the increased cost to comply with ordinances or laws regulating the repair, rebuilding, or replacement of covered buildings. C. The amount of insurance is equal to 25 percent of the amount of insurance on the building or $50,000, whichever is less. D. It includes coverage for the cost to demolish the undamaged portion of the structure and remove its debris.

B. It provides a small amount of insurance to cover the increased cost to comply with ordinances or laws regulating the repair, rebuilding, or replacement of covered buildings.

Despite being frequently reminded otherwise, Laura was in the habit of leaving her car door unlocked, often with her purse inside. As a result, Laura's car was stolen, along with her purse. Laura's behavior is an example of a A. Legal hazard. B. Morale hazard. C. Moral hazard. D. Physical hazard.

B. Morale hazard.

To determine the extent of coverage a policy provides, pre-loss policy analysis almost exclusively relies on A. Post-loss policy analysis. B. Scenario analysis. C. The DICE method. D. Coverage triggers.

B. Scenario analysis.

Which one of the following is generally true regarding an insurer's internal data? A. Underwriting expenses and unallocated loss adjustment expenses (ULAE) are tracked in the aggregate by policy year. B. Some data required for ratemaking is not specific to any one policy or, in some cases, not even to any one product. C. Each record in a policy database represents a transaction tied to a specific claim (such as a reserve change). D. The two types of internal data involved in a ratemaking analysis are known as databases and expenses.

B. Some data required for ratemaking is not specific to any one policy or, in some cases, not even to any one product.

Which one of the following statements is true regarding the distinguishing characteristics of insurance contracts? A. Insureds are generally allowed to transfer an insurance policy to a third party without the insurer's written consent, because insurance policies are not considered to be personal contracts. B. Typical insurance contracts are contracts of adhesion. C. Insurance policies are considered conditional because if the insured meets the premium payment condition, the insurer must pay the claims. D. Standard insurance policies contain no ambiguities.

B. Typical insurance contracts are contracts of adhesion.

Which one of the following average claim values is calculated as cumulative total paid claims divided by total closed claims counts? A. Average case outstanding B. Average paid on closed claims C. Average paid D. Average reported

C. Average paid

Insurance policy rating information and policy premium are found in which one of the following categories of insurance policy provisions? A. Insuring agreements B. Miscellaneous provisions C. Declarations D. Conditions

C. Declarations

Which one of the following is a risk financing technique? A. Loss prevention B. Separation C. Transfer D. Diversification

C. Transfer Risk Financing techniques include: Risk Transfer Risk Retention

Planetary Insurance Company has written a general liability policy, effective January 1, 2015 and expiring January 1, 2016. The yearly premium of $600 was collected on December 1, 2014. Using a deferral-matching approach and assuming no losses, expenses, or taxes, the unearned premium liability on March 31, 2015 would be A. $50 B. $150 C. $300 D. $450

D. $450

What is the Section I standard deductible in the HO-3 policy? A. $50 B. $100 C. $250 D. $500

D. $500

The date that defines the group of claims for which liability may exist, namely all insured claims incurred on or before it, is the A. Record date. B. Notification date. C. Accident date. D. Accounting date.

D. Accounting date.

Every loss exposure has which one of the following elements? A. Emotional consequences of the loss B. Physical consequences of the loss C. Hazardous conditions D. Asset exposed to loss

D. Asset exposed to loss

Which one of the following is an example of premium earned before it is written? A. Extended reporting endorsement premiums. B. Large deductible credits. C. Reinsurance premiums. D. Audit premium.

D. Audit premium.

Which one of the following provisions outlines the steps the insured needs to take to enforce the policy? A. Declarations B. Miscellaneous provisions C. Insuring agreement D. Conditions

D. Conditions

In the insurance industry, a hard market is characterized by A. Abundant marketplace capital. B. Decreased insurers' profitability. C. Lower premiums. D. Decreased competition.

D. Decreased competition.

Which one of the following is true regarding enterprise-wide risk management (ERM)? A. In practice, implementation of ERM occurs at the departmental or business unit level. B. Implementation of ERM is fairly consistent among organizations, regardless of their size, nature, or complexity. C. ERM is an approach to risk management that focuses primarily on loss exposures associated with pure risk. D. ERM is an approach to managing all of an organization's key risks and opportunities.

D. ERM is an approach to managing all of an organization's key risks and opportunities.

Which one of the following statements is true regarding allocated loss adjustment expenses (ALAE), unallocated loss adjustment expenses (ULAE), defense and cost containment (DCC) expenses, and adjusting and other (A&O) expenses? A. ULAE are comparable to DCC expenses, and ALAE are comparable to A&O expenses. B. Legal fees to defend against a specific claim are ULAE, and ALAE are those that are more difficult to assign to particular claims. C. The new standardization of definitions makes comparisons more meaningful, and so DCC and A&O are more commonly used in ratemaking. D. In general, ALAE or DCC vary by the dollar amount of each claim, while ULAE or A&O vary by the number of claims reported.

D. In general, ALAE or DCC vary by the dollar amount of each claim, while ULAE or A&O vary by the number of claims reported.

Another term for cause of loss is A. Negative outcome. B. Hazard. C. Exposure. D. Peril.

D. Peril.

Billy owns a beach front cottage which has become his primary residence. Billy's primary concern is that his home will be hit by a hurricane and badly damaged or even destroyed. For Billy, this hurricane risk is a A. Market risk. B. Speculative risk. C. Strategic risk. D. Subjective risk.

D. Subjective risk.

Which one of the following controls the coverage provided by a workers compensation policy? A. Professional employer organizations (PEOs) B. The Occupational Safety and Health Administration (OSHA) C. The policy provisions D. The state compensation laws

D. The state compensation laws

Which one of the following correctly describes how liability policies that include a deductible usually handle the defense of claims? A. The insurer pays all defense costs without contribution from the insured. B. The insurer pays a stated amount which reduces the limit available under the policy. C. The insurer bills the insured for defense costs less than the deductible amount. D. The insurer provides a defense only for losses that exceed the deductible amount.

A. The insurer pays all defense costs without contribution from the insured.

Pre-loss policy analysis almost exclusively relies on scenario analysis to determine the extent of coverage for the losses generated by a given scenario. For insureds, the primary source of information for generating scenarios for analysis is A. Their past loss experience. B. The available insurance coverage. C. Insurance industry statistical data. D. State mandated coverage limits.

A. Their past loss experience.

The Commercial General Liability (CGL) Coverage Form defines the term "occurrence" as A. An incident, sudden and accidental in nature, causing bodily injury or property damage. B. An accident, including continuous or repeated exposure to substantially the same general harmful conditions. C. An accident, causing bodily injury or property damage, that occurs suddenly. D. An incident resulting from repeated exposure to substantially the same general harmful conditions.

B. An accident, including continuous or repeated exposure to substantially the same general harmful conditions.

Operations liability claims normally focus on A. A clear right-of-way rule. B. An unsafe act. C. An unsafe condition. D. A constructive total loss.

B. An unsafe act.

Alice bought furniture for her home using store credit. There were no liens attached, and when Alice could not pay the full amount for the furniture, the store owner sued her. The store owner was A. A bailor. B. An unsecured creditor. C. A secured creditor. D. A lessor.

B. An unsecured creditor.

Which one of the following best describes how an initial case outstanding would most likely be established for a claim involving a serious type of injury that rarely occurs? A. Using the tabular method B. Analyzing specific claim details C. Relying on a formula D. Including a case outstanding for salvage

B. Analyzing specific claim details

Which one of the following perils would be covered under the commercial property policy broad form but not covered under the basic form? A. Damage due to vehicles B. Damage due to weight of snow C. Damage due to explosion. D. Damage due to vandalism

B. Damage due to weight of snow

Twelve Additional Coverages are provided in the HO-3 policy, Section I—Property Coverages. Which one of the following is true regarding one of these Additional Coverages? A. Fire Department Service Charge provides up to $500 as a donation to the local volunteer fire department to assist in maintaining fire protection service. B. Debris Removal grants an additional 5% of the limit of liability, if needed, due to a covered loss. C. Reasonable Repairs coverage increases the policy limit to provide for the cost of measures taken to protect the property from further damage. D. Trees, Shrubs and Other Plants coverage provides up to an additional $1000 for damage due to windstorm as well as other perils.

B. Debris Removal grants an additional 5% of the limit of liability, if needed, due to a covered loss.

A change in accounting estimate A. May require special disclosure of the change. B. Generally affects only the latest reporting period. C. Requires specific implementation guidance. D. Could possibly require recalculation of prior period results.

B. Generally affects only the latest reporting period.

Jemma has two pairs of earrings she wants to ensure against theft. Jemma's earrings are categorized as A. Intangible property. B. Personal property. C. Real property. D. Community property.

B. Personal property.

Which one of the following statements best describes the Causes of Loss—Special Form? A. The placement of the "burden of proof" rests with the insured as opposed to the insurer. B. The Special Form provides coverage for direct physical losses other than those that are specifically excluded. C. The Special Form is designed to cover any loss that would not be covered by the Basic and Broad Forms. D. The Special Form contains exclusions that are covered in the Basic and Broad Forms for certain hard to insure perils.

B. The Special Form provides coverage for direct physical losses other than those that are specifically excluded.

Insurance regulators must balance their objective to maintain solvency and protect consumers with the effect regulation can have on A. The size of the insurance department. B. The availability of insurance products. C. Shareholder returns. D. Corporate profits.

B. The availability of insurance products.

The focus of the deferral-matching accounting approach is A. The balance sheet. B. The income statement. C. The value of assets. D. The value of liabilities.

B. The income statement.

Sarah and Ernest Ridley have an unendorsed Personal Auto Policy (PAP) covering Sarah's sedan and Ernest's SUV with the following coverages and limits: Liability $100,000/$300,000/$50,000 Medical Payments $5,000 Uninsured Motorists $100,000/$300,000 Other Than Collision - Actual Cash Value Less $250 Collision - Actual Cash Value Less $500 Ernest was running errands in the SUV along with Sarah and their granddaughter, Millie. As a deer ran across the road in front of him, Ernest lost control of the vehicle and struck a parked car. The damages and costs from the accident are as follows: Damages to the SUV $15,000 Damages to the parked car $8,500 Ernest's medical injuries $10,000 Sarah's medical injuries $7,000 Millie's medical injuries $4,000 Defense cost $7,500 Sarah and Ernest live in a state without a no-fault insurance law. How much, if any, will Ridley's PAP insurer pay under Part A—Liability Coverage? A. $0 B. $8,500 C. $16,000 D. $20,000

C. $16,000 The insurer will pay $16,000 under Part A—Liability Coverage, which includes $8,500 for the damages to the parked car and $7,500 in defense costs.

Tim and Kelly have a Personal Auto Policy (PAP) with liability limits of $100/$300/$50. They were at fault in an accident when they lost control of their vehicle and ran into a van, injuring eight passengers in the van. There was a $600,000 judgment against Tim and Kelly, which was the total of $75,000 for each of the eight passengers in the van. Defense costs totaled $25,000. How much will Tim and Kelly's PAP insurer pay for this accident? A. $100,000 B. $300,000 C. $325,000 D. $625,000

C. $325,000

When calculating measures of potential loss severity involving property exposed within a single fire division, underwriters often use the expression "within four walls" to explain the concept of A. Maximum foreseeable loss. B. Policy amount. C. Amount subject. D. Normal loss expectancy.

C. Amount subject.

Which one of the following are shared by the primary insurer and the reinsurer in pro rata reinsurance transactions? A. Premium taxes B. Investment income from reserves C. Amounts of insurance D. Commissions to producers

C. Amounts of insurance

Which one of these is an example of an entity to whom the Coverage A Liquor Liability exclusion would not apply? A. An insured in the business of furnishing alcoholic beverages B. An insured in the business of manufacturing alcoholic beverages C. An insured not in the alcoholic-beverage business that becomes liable for injury resulting from serving alcoholic beverages D. An insured in the business of distributing alcoholic beverages

C. An insured not in the alcoholic-beverage business that becomes liable for injury resulting from serving alcoholic beverages

Which one of the following is correct with regard to an insurer's line and large-line capacity? A. Reinsurance is generally not used to increase insurers' large-line capacity. B. The specific characteristics of a loss exposure do not influence an insurer's line. C. An insurer's line is influenced by the maximum amount of insurance or limit of liability allowed by insurance regulations. D. Large-line capacity is an insurer's ability to reinsure a larger proportion of its book of business.

C. An insurer's line is influenced by the maximum amount of insurance or limit of liability allowed by insurance regulations.

Which one of the following is true regarding the methods of data aggregation? A. The main disadvantage of policy year aggregation is the mismatch in timing between premium and losses. B. Report year is similar to calendar year and policy aggregation and is typically used for personal lines products such as homeowners. C. Calendar year aggregation for ratemaking analysis may be most appropriate for coverages in which losses are reported and settled relatively quickly. D. Accident year aggregation represents the best match between losses and premium.

C. Calendar year aggregation for ratemaking analysis may be most appropriate for coverages in which losses are reported and settled relatively quickly.

A customer in a department store slips and falls on a newly mopped floor, despite observing a sign indicating not to walk on it. The customer, who suffers back pain after falling, tells the store manager he saw the sign but walked on the floor anyway. Two days after the fall, the customer hires an attorney and files a lawsuit against the store for his injury. Given this information, which one of the following defenses is the department store's insurer likely to use for this premises liability claim? A. An express warranty B. Statute of limitations C. Comparative negligence D. Absence of duty

C. Comparative negligence

Which one of the following is typically a post-loss risk management goal? A. Legality B. Economy of operations C. Continuity of operations D. Tolerable uncertainty

C. Continuity of operations

Which one of the following is typically a post-loss risk management goal? A. Tolerable uncertainty B. Economy of operations C. Continuity of operations D. Legality

C. Continuity of operations

Organizations find it difficult to establish a benchmark against which the performance of their risk management program can be assessed because it is difficult to assign a specific value to the A. Cost of implementing and administering risk management. B. Cost of measures to prevent or reduce the size of potential losses. C. Cost of residual uncertainty. D. Cost of losses not reimbursed by insurance.

C. Cost of residual uncertainty.

The expensive and inefficient process of insuring low severity small claims is referred to as A. Claim costs offset. B. Dollar cost averaging. C. Dollar trading. D. Stair-stepping.

C. Dollar trading.

Omicron Incorporated is insured under an ISO commercial property policy and an ISO equipment breakdown policy. Both policies include the Other Insurance provision. In the case of a loss for which both policies provide coverage under the same plan, terms, and conditions, which one of the following statements is correct? A. Omicron can collect the full amount of the loss under both policies. B. The policy that has been in force the longest becomes primary and the other policy becomes excess. C. Each policy pays in relation to all applicable policies. D. The ISO commercial property policy becomes primary and the equipment breakdown policy becomes excess.

C. Each policy pays in relation to all applicable policies.

The focus of a line underwriter is A. Conducting education and training. B. Securing and maintaining treaty reinsurance. C. Evaluating new submissions and renewal underwriting. D. Managing the risk selection process.

C. Evaluating new submissions and renewal underwriting.

Thomas is a surgeon who routinely performs surgery on patients with nasal problems. People suffering from sinus headaches often consult with him to see if he can provide them with relief from symptoms. Thomas arranges a consultative appointment with each of his patients before scheduling treatment to discuss treatment options, chances of success, and risks associated with surgery. If one of Thomas' patients should experience a negative outcome from surgery, Thomas is likely to be found at fault in a malpractice suit if it is determined that he A. Failed to provide an exhaustive written explanation of the risks of treatment and the treatment options. B. Failed to provide the patient with full relief from his/her symptoms. C. Failed to exercise the standard of care accepted in the profession of nasal surgeon. D. Failed to provide leading-edge expertise in nasal surgery to the patient.

C. Failed to exercise the standard of care accepted in the profession of nasal surgeon.

Fluctuations in the value of stocks or bonds due to interest rate changes is an example of A. Strategic risk. B. Hazard risk. C. Financial risk. D. Operational risk.

C. Financial risk.

Which one of the following statements is correct with respect to underwriting workers compensation insurance? A. All firms in the same industry generally have the same hazards and level of risk. B. An insured's providing healthcare benefits is not related to its workers compensation exposure. C. From an underwriting standpoint, housekeeping refers to cleanliness and operating efficiency. D. On-premises hazards relating to housekeeping and maintenance are rare.

C. From an underwriting standpoint, housekeeping refers to cleanliness and operating efficiency.

A third-party administrator (TPA) usually A. Is an employee of the insurance company. B. Is compensated per individual claim. C. Handles claims from beginning to end. D. Manages all the claims of an insurer.

C. Handles claims from beginning to end.

Property-casualty insurers frequently rely on which one of the following to offset high losses and rising operating costs? A. Regulatory controls B. Soft markets C. Investment earnings D. Large profit margins

C. Investment earnings

Which one of the following describes how an effective risk management program should support an organization's pre-loss operational goals? A. It should ensure that risk management costs are kept to a minimum. B. It should eliminate uncertainty by identifying and managing loss exposures. C. It should help ensure that the organization's legal obligations are satisfied. D. It should ensure that no conflicts exist among the pre-loss goals.

C. It should help ensure that the organization's legal obligations are satisfied.

The most common violations of the concept of utmost good faith in insurance policies involve buildup in insurance claims filed by insureds and/or A. Exchange of unequal amounts. B. Adverse selection. C. Misrepresentation of key facts. D. Overindemnification.

C. Misrepresentation of key facts.

Information that can be used for economic decision making without regard for how it may affect economic, political, or social behavior embodies the characteristic of reliability known as A. Completeness. B. Verifiability. C. Neutrality. D. Representational faithfulness.

C. Neutrality.

While mowing the lawn at his family's home, Jake accidentally ran over the foot of his three-year-old son, causing severe injury. What coverages for this loss, if any, would be provided under Jake's HO-3 policy? A. Coverage F—Medical Payment to Others only B. Coverage E—Personal Liability only C. None D. Coverage E—Personal Liability and Coverage F—Medical Payment to Others

C. None

Each pre-loss question posed or post-loss claim filed by an insured is a unique situation that may require insurance professionals to review the A. Policy procedures. B. Policy booklet. C. Policy provisions. D. Risk management objectives.

C. Policy provisions.

Risk management program goals are typically divided into two categories: pre-loss goals and post-loss goals. Which one of the following describes one of these categories of goals? A. Pre-loss goals are risk management goals that allow the organization to prepare for future losses. B. Pre-loss goals include profitability, earnings stability, and loss prevention. C. Post-loss goals broadly describe the degree of recovery that an organization will strive to reach following a loss. D. Post-loss goals include immediate restoration of operations, tolerable uncertainty, and loss mitigation.

C. Post-loss goals broadly describe the degree of recovery that an organization will strive to reach following a loss.

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

C. Premium to surplus ratio

Per risk excess of loss reinsurance covers A. Liability insurance and applies to each loss occurring from each occurrence. B. Property insurance and applies to the total of all losses occurring from one risk. C. Property insurance and applies separately to each loss occurring to each risk. D. Workers compensation insurance and applies to the total of all losses occurring from one risk.

C. Property insurance and applies separately to each loss occurring to each risk.

Which one of the following statements relating to the use of property insurance deductibles is correct? A. Risk transfer mechanisms such as insurance are designed to cope with low-severity property losses. B. For most property insurance policies, the premium reduction is directly proportional to the size of the deductible. C. Property insurance deductibles reduce premium costs by encouraging insureds to prevent or reduce losses. D. Small property insurance deductibles help eliminate dollar trading.

C. Property insurance deductibles reduce premium costs by encouraging insureds to prevent or reduce losses.

Though marketing plans are varied, they all serve the same fundamental purpose of A. Developing compensation methods for producers. B. Developing distribution channels for products and services. C. Providing the "roadmap" necessary to profitably and effectively acquaint sellers with potential buyers. D. Establishing the contractual relationship between producer and insurer to enable each to meet its goals.

C. Providing the "roadmap" necessary to profitably and effectively acquaint sellers with potential buyers.

Traditionally, the risk management professional's role has been associated with loss exposures related to A. Business risk. B. Speculative risk. C. Pure risk. D. Operational risk.

C. Pure risk.

Insurance deals primarily with A. Speculative risks. B. Subjective risks. C. Pure risks. D. Strategic risks.

C. Pure risks.

Residual uncertainty is the level of risk that remains after organizations implement their risk management plans. Which one of the following statements is correct with respect to residual uncertainty? A. Residual uncertainty is an objective measure, independent of an organization's subjective view of the risks to which it is exposed. B. The cost of residual uncertainty is relatively easy to calculate and comprises an important part of any cost of risk study. C. Residual uncertainty can be minimized, but doing so is costly because more has to be spent on attempts to control or finance the risks involved. D. Cost of residual uncertainty is a factor only in the case of speculative risk; it is not a consideration where pure risk is concerned.

C. Residual uncertainty can be minimized, but doing so is costly because more has to be spent on attempts to control or finance the risks involved.

Which one of the following statements is true regarding watercraft liability coverage under the HO-3 policy? A. Watercraft owned by the insured that is stored at a marina is not covered. B. Sailboats longer than 26 feet not owned by or rented to an insured are not covered. C. Sailboats shorter than 26 feet owned by the insured are covered. D. Inboard watercraft with 50 horsepower engines owned by the insured are covered.

C. Sailboats shorter than 26 feet owned by the insured are covered.

Which one of the following is an exclusion unique to the Causes of Loss—Special Form? A. Mudslide or mudflow B. War C. Smog D. Rupture or bursting of water pipes

C. Smog

Which one of the following statements is true concerning premium development? A. Calendar year data is fixed at the end of the calendar year, so calendar year data is never adjusted for premium audits. B. Premium development factors to adjust for premium audits are necessary to determine ultimate premium for policy year, but not accident year, data. C. Some actuaries adjust calendar year premium if audit patterns are changing and a calendar year analysis is being performed. D. For premium development in the case of an incomplete year, this is more common for calendar year analysis than policy year analysis.

C. Some actuaries adjust calendar year premium if audit patterns are changing and a calendar year analysis is being performed.

Under a Commercial General Liability (CGL) policy, an insured is found to be legally liable to pay medical expenses as well as loss of earnings to a claimant. This describes which one of the following types of damages? A. Excess damages B. Punitive damages C. Special damages D. General damages

C. Special damages

Which one of the following is the name of the insurance policy provision that addresses the situation where recovery from a negligent third-party overlaps with first-party insurance coverage? A. Other insurance B. Valuation C. Subrogation D. Coinsurance

C. Subrogation

The Insuring Agreement in Part A—Liability Coverage of the Personal Auto Policy (PAP) addresses all of the following categories, EXCEPT: A. Persons and organizations insured B. Defense costs covered C. Supplementary payments D. Damages covered

C. Supplementary payments The Part A Insuring Agreement states the insurer's duty to pay damages and defense costs, and defines the persons and organizations insured under Part A. Part A of the PAP contains a separate provision for payment of certain expenses that are considered supplementary payments.

Regarding diversifiable and nondiversifiable risk, which one of the following statements is accurate? A. An example of a diversifiable risk is inflation. B. Risks must be either diversifiable or nondiversifiable. C. Systemic risks are generally nondiversifiable. D. An example of a nondiversifiable risk is a fire.

C. Systemic risks are generally nondiversifiable.

Tania's Boardwalk Soda Shop (TBSS) is open year round, but the majority of its sales occur during the summer months. The shop is staffed primarily by college students. TBSS operates out of a 2,000 square foot frame building that could be rebuilt in three months. Which one of the following statements concerning TBSS's business income exposure is true? A. The size of any business income loss that TBSS could suffer is directly related to the size of the direct damage loss. B. The use of college students to staff the shop creates a bottleneck exposure. C. TBSS could suffer a severe business income loss from a relatively short shutdown. D. The amount of time required to rebuild the shop does not affect the business income loss exposure.

C. TBSS could suffer a severe business income loss from a relatively short shutdown.

Which one of the following would be an exception to the Coverages E and F Business exclusion to the liability coverage provided by the HO-3 policy? A. Charging neighborhood families for home daycare services B. Full-time landscaping business C. Teenage son of named insured painting neighbor's fence in exchange for a few dollars D. Full-time beauty salon in the home

C. Teenage son of named insured painting neighbor's fence in exchange for a few dollars

Which one of the following is true regarding the use of the terms "incremental" and "cumulative" in regard to claims and claims development triangles? A. The incremental paid claims triangle is important for some frequency-severity techniques; therefore, actuaries tend to use incremental paid claims triangles more often than cumulative paid claims triangles. B. The cumulative paid claims at thirty-six months are equal to the cumulative paid claims at twenty-four months plus the incremental paid claims at twenty-four months. C. The cumulative paid claims triangle is derived by simple arithmetic from the incremental paid claims triangle; incremental paid claims are equal to cumulative paid claims at the first maturity date. D. The cumulative paid claims at forty-eight months are equal to the cumulative paid claims at forty-eight months plus the incremental paid claims at forty-eight months.

C. The cumulative paid claims triangle is derived by simple arithmetic from the incremental paid claims triangle; incremental paid claims are equal to cumulative paid claims at the first maturity date.

Which one of the following best describes loss reserves? A. The amount that has been paid for events that occurred during the unexpired portion of the policy period B. Estimates of losses for both the expired and unexpired portions of the policy period C. The estimate of the ultimate cost of incurred but unpaid losses D. An accounting for deficiencies in loss estimates

C. The estimate of the ultimate cost of incurred but unpaid losses

An important goal of insurers that sell property insurance is to motivate each insured to buy a limit of insurance that approximates the full value of the covered property. The benefit to the insured of buying insurance to value is that it ensures A. Insureds are able to obtain prompt, efficient, and effective claim coverage from their insurers. B. Insurers are compliant with state regulations. C. There are sufficient funds available in the event of a total loss. D. That premiums are high enough to guarantee insurer profits and low enough that insurance is affordable.

C. There are sufficient funds available in the event of a total loss.

All of the following are usually analyzed as part of the DICE method of policy analysis, EXCEPT: A. Declarations B. Insuring agreement C. Exclusions D. Past loss experience

D. Past loss experience

The damage to premises rented to you limit of Coverage A of the Commercial General Liability (CGL) policy applies to A. Preventive measures the insured takes to prevent fire. B. The insured's real and personal property. C. Products-completed operations that cause fire. D. The insured's liability for fire damage to premises it rents or temporarily occupies.

D. The insured's liability for fire damage to premises it rents or temporarily occupies.

Which one of the following statements is correct with respect to umbrella and excess liability insurance? A. Excess liability insurance policies typically offer much broader coverage than do the underlying policies. B. While umbrella policies are typically layered, a single excess policy will provide all the increased limits an insured requires. C. Umbrella liability insurance is designed to cover an aggregation of smaller, high-frequency losses. D. The self-insured retention for a commercial umbrella liability policy is usually $10,000.

D. The self-insured retention for a commercial umbrella liability policy is usually $10,000.

Because underwriting guidelines usually specify the attributes of accounts that insurers are willing to insure, insurers consider them A. The tool for training underwriters. B. The key to profitability. C. The level of authority. D. Trade secrets.

D. Trade secrets.

A company owns land that is used as a softball diamond and recreational park for hosting employee picnics. Once a year the company also allows a non-profit organization to hold a softball game on these premises. During this year's softball game, the director of the non-profit was injured when a softball hit him in the head. He asked the company that owns the land to pay for his trip to the emergency room. The company's unendorsed Commercial General Liability policy A. Does not respond to the director's injuries sustained because they happened during an athletic event. B. Pays up to the per occurrence liability limit for the director's injuries sustained. C. Pays for the director's injuries sustained up to the Coverage C limit. D. Does not respond to the director's injuries sustained because of the volunteer exclusion.

A. Does not respond to the director's injuries sustained because they happened during an athletic event.

Homeowner Stan is told by an arborist that a dead tree is going to fall on his house and must be removed. Knowing his insurer would indemnify him for the damage to the house, Stan chose to do nothing. Which one of the following statements regarding Stan's decision is accurate? A. If the tree damages Stan's property, it will not be a fortuitous loss. B. Stan is guilty of adverse selection since he is aware of the hazard. C. The insurer may deny coverage based on Stan's material misrepresentation of the potential hazard. D. Stan is defrauding his insurer.

A. If the tree damages Stan's property, it will not be a fortuitous loss.

Which one of the following statements is correct regarding sources of recovery under insurance policies? A. In situations involving a loss covered by two similar policies with different insurers, the insurers usually share the loss. B. If an insured's loss is covered under two similar policies, the policy that was issued first must pay the loss. C. Policy provisions generally exclude coverage for items covered under a policy with another insurer. D. An insured cannot simultaneously hold two policies of the same type with two different insurers.

A. In situations involving a loss covered by two similar policies with different insurers, the insurers usually share the loss.

An advantage that retention offers an individual or organization is A. Incentive for risk control. B. Reduction in exposure to large loss. C. Reduction in cash flow variability. D. Transference of responsibility for claims administration.

A. Incentive for risk control.

An income statement is structured to calculate an organization's A. Net worth. B. Assets as of a specific date. C. Sources and uses of funds. D. Profitability.

D. Profitability.

Sarah is an actuary for Durham Insurance. She has been asked to calculate the pure premium for the personal auto line of business. Based on the following information, which one of the following is the correct pure premium? Premium - $6.0 million Number of Exposures - 10,000 Losses - $4.2 million Number of Claims - 3,000 Profit Goal - 5% A. $420 B. $442 C. $600 D. $1,400

A. $420 $4,200,000 / 10,000 exposures = $420 per exposure The pure premium "refers to that portion of that rate needed to pay losses and loss-adjustment expenses".

Harry has a Personal Auto Policy (PAP) with liability limits of $100/$300/$50 and medical payments limits of $5,000 insuring his SUV. Harry also has other than collision and collision coverages with deductibles of $250 and $500, respectively. The local taxicab drivers are on strike and Harry decides to capitalize on the situation by transporting persons in his SUV for a fee. While transporting a businessman, Harry loses control of his SUV and hits a parked car. The damages are as follows: Harry's medical costs $2,000 The businessman's medical costs $1,000 Damage to the parked car $14,000 Damage to Harry's car $12,000 How much will Harry's PAP insurer pay for damages under Part B—Medical Payments coverage? A. $0 B. $1,000 C. $2,000 D. $3,000

A. $0

Harry has a Personal Auto Policy (PAP) with liability limits of $100/$300/$50 and medical payments limits of $5,000 insuring his SUV. Harry also has other than collision and collision coverages with deductibles of $250 and $500, respectively. The local taxicab drivers are on strike and Harry decides to capitalize on the situation by transporting persons in his SUV for a fee. While transporting a businessman, Harry loses control of his SUV and hits a parked car. The damages are as follows: Harry's medical costs - $2,000 The businessman's medical costs - $1,000 Damage to the parked car - $14,000 Damage to Harry's car - $12,000 How much, if any, will Harry's PAP insurer pay for damages under Part A—Liability Coverage? A. $0 B. $14,000 C. $17,000 D. $29,000

A. $0

Marta insured her home with an HO-3 policy that includes a Personal Property Replacement Cost Loss Settlement endorsement. Her large screen television fell off the wall and was damaged beyond repair. She had paid $2,000 for it. At the time of loss it had an actual cash value of $800 and a replacement cost of $1,500. Because she found that she had little time to watch television, she decided not to replace the TV. How much did her insurer pay on the claim? A. $0 B. $800 C. $1,500 D. $2,000

A. $0

Dan owns a bike repair shop which is located on the first floor of a 3 story building owned by Jane. Jane uses the third floor for her own business and rents out the second floor to a graphic design studio. While doing some bike repair work, Dan accidentally started a fire which spread throughout the entire building. The damage from the fire consisted of : i) damage to Dan's business personal property - $250,000; ii) damage to the bike repair shop building rented to Dan - $125,000; iii) damage to the remainder of the building - $200,000; and iv) bodily injury to a customer of the graphic design studio on the 2nd floor - $300,000. Dan's bike repair shop is insured by a Commercial General Liability policy (occurrence version) with no deductible and no endorsements. The insurer has determined that Dan is legally liable for all the damages. The policy's each occurrence limit is $1,000,000; the Damage to Premises Rented to You limit is $100,000; and the policy's general aggregate is $2,000,000. Under the Commercial General Liability policy, how much will the insurer pay for Dan's business personal property? A. $0 B. $25,000 C. $125,000 D. $250,000

A. $0 General liability insurance only pays for third-party damages, not yours. You're considered the "first-party". This means general liability won't cover your property or equipment against theft or damage. To protect property, Business Personal Property coverage can be added as a part of a Business Owners Policy.

Sarah and Ernest Ridley have an unendorsed Personal Auto Policy (PAP) covering Sarah's sedan and Ernest's SUV with the following coverages and limits: Liability $100,000/$300,000/$50,000 Medical Payments $5,000 Uninsured Motorists $100,000/$300,000 Other Than Collision Actual Cash Value Less $250 Collision Actual Cash Value Less $500 Ernest was running errands in the SUV along with Sarah and their granddaughter, Millie. As a deer ran across the road in front of him, Ernest lost control of the vehicle and struck a parked car. The damages and costs from the accident are as follows: Damages to the SUV $15,000 Damages to the parked car $8,500 Ernest's medical injuries $10,000 Sarah's medical injuries $7,000 Millie's medical injuries $4,000 Defense cost $7,500 How much will Ridley's PAP insurer pay under Part D—Damage to Your Auto? A. $14,500 B. $14,750 C. $15,000 D. $23,000

A. $14,500

Sandi purchased a $130,000 home three years ago and took out a $100,000 mortgage. Today her home is worth $150,000 and she still owes $55,000 on the home. The mortgage holder has an insurable interest of how much in Sandi's home? A. $55,000 B. $100,000 C. $130,000 D. $150,000

A. $55,000

Omega Holdings owns a building with an actual cash value of $200,000. The property is insured under a Building and Personal Property Coverage Form (BPP) with a building limit of $140,000, an 80 percent coinsurance clause, and a $1,000 deductible. The policy includes a Causes of Loss—Broad Form covering the building. The building suffers $80,000 in fire damage. Which one of the following amounts will Omega's insurer pay? A. $69,000 B. $70,000 C. $79,000 D. $80,000

A. $69,000 140k is 70% of 200k Policy requires 80% coinsurance B/c the policy is only covering 70% and it should cover 80%, the policy will only pay an equivalent ratio in loss (70/80 = .875) .875 * 80,000 - 1,000 = $69,000

Omega Holdings owns a building with an actual cash value of $200,000. The property is insured under a Building and Personal Property Coverage Form (BPP) with a building limit of $140,000, an 80 percent coinsurance clause, and a $1,000 deductible. The policy includes a Causes of Loss—Broad Form covering the building. The building suffers $80,000 in fire damage. Which one of the following amounts will Omega's insurer pay? A. $69,000 B. $70,000 C. $79,000 D. $80,000

A. $69,000 The insured should have carried 80% of $200,000 or $160,000. Instead the insured carried only $140,000. [($140,000/$160,000) x $80,000] - $1,000 = $69,000.

Based on five years of historical loss and allocated loss adjustment expense (ALAE) data, an actuary has selected the following age-to-age factors: Age-to-Age factor 15-27 | 27-39 | 39-51 | 51-63 | 63-Ult. 1.0844 | 1.0436 | 1.0118 | .9880 | 1.0001 Based on the above, what factor should be applied to losses with a 27 month valuation in order to develop them to the ultimate valuation? A. 1.0433 B. 1.0436 C. 1.0884 D. 1.1314

A. 1.0433 Based on the historical data, losses with a 27 month valuation should be multiplied by a factor of 1.0433 in order to develop them to the ultimate valuation. The age-to-ultimate factors is calculated as follows: 1.0436 x 1.0118 = 1.0559; 1.0559 x .9880 = 1.0432; 1.0432 x 1.0001 = 1.0433

The table below shows the effective date, expiration date, and exposures for six policies written by Glaston Insurance. Assuming that all exposure is evenly distributed throughout the year, what is Glaston Insurance's earned exposure for policy year (PY) 20X6 on 9/30/X6? Policy | Effective Date | Expiration Date | Exposure A 10/01/X5 09/30/X6 20 B 01/01/X6 12/31/X6 40 C 04/01/X6 03/31/X7 100 D 07/01/X6 06/30/X7 40 E 10/01/X6 09/30/X7 20 F 01/01/X7 12/31/X7 100 A. 90 B. 105 C. 130 D. 200

A. 90 A - 0 - Exposure is completely exhausted B - 10 - 9/12 months = 3/4 = 0.75*40 = 30 >>> 40-30 = 10 C - 50 - 6/12 months = 1/2 = 0.50*100 = 50 >>> 100-50 = 50 D - 30 - 3/12 months = 1/4 = 0.25*40 = 10 >>> 40-10 = 30 0+10+50+30 = 90

Which one of the following would be an exception to the Coverages E and F Business exclusion to the liability coverage provided by the HO-3 policy? A. A 12-year-old girl pet sitting the neighbor's dog for a fee B. Full-time landscaping business C. Mother running a full-time beauty salon in the home as a second income to support the family D. Home daycare services for a fee

A. A 12-year-old girl pet sitting the neighbor's dog for a fee The Coverages E and F Business exclusion is designed to exclude coverage for bodily injury or property damage arising out of the business activities of any insured while providing coverage for occasional or part-time activities. Coverage E - Personal Liability Coverage F - Medical Payments

Which one of the following is an element of a loss exposure? A. A cause of loss B. The probability of a loss C. The verification of risk D. The occurrence of a loss

A. A cause of loss

The perils covered for Coverage C—Personal Property of the HO-3 policy differ significantly from the special form coverage for Coverage A and B. Damage from which one of the following events would be covered under Coverage A but not for Coverage C? A. A chandelier accidently fell from the ceiling and damaged the dining room floor, the dining room table, and a centerpiece. B. A pipe froze and leaked causing damage to the floor and personal property while the homeowners were asleep. C. Due to an ice dam, water enters a home causing damage to the home and furniture inside. D. Due to a power surge the home heat pump and a window air conditioner suffered electrical damage.

A. A chandelier accidently fell from the ceiling and damaged the dining room floor, the dining room table, and a centerpiece. A chandelier accidently falling from the ceiling and damaging the dining room floor, the dining room table, and a centerpiece would be covered for the damage to the floor but not the table or centerpiece.

Which one of the following is an example of a miscellaneous provision in a policy issued by a mutual insurer? A. A description of each insured's right to vote for the board of directors B. The elimination of coverages requiring special treatment C. A requirement that the insured cooperate with the insurer in legal proceedings D. A promise to pay and defend the insured

A. A description of each insured's right to vote for the board of directors

Which one of the following insurance customers would fit in the middle market group? A. A one-location furniture manufacturer with a risk manager on staff B. A family of five individuals that owns a house and two cars C. A nail salon with six employees in a rented location D. A pharmaceutical company with manufacturing operations throughout the United States and Canada

A. A one-location furniture manufacturer with a risk manager on staff

Regulators protect insurance consumers from which one of the following producers' behaviors? A. A producer may misrepresent the nature of protection offered by the policy to make a sale. B. A producer may refuse to use software that is endorsed and installed by an insurer the agent represents. C. A producer may require its insureds to call the insurer's claim office directly to report all claims. D. A producer may advise a client not to purchase insurance, but to self-insure using its other investment products.

A. A producer may misrepresent the nature of protection offered by the policy to make a sale.

Which one of the following claims would be covered under Coverage B—Personal and Advertising Injury Liability of the Commercial General Liability Coverage Form (CGL)? A. A store manager accuses a young man of shoplifting, apprehends him, and locks him in a storage room until the police arrive. When it is discovered that the young man is innocent, he files a claim against the store. B. A landlord of a commercial building argues with a tenant, enters the tenant's store after hours and damages the tenant's merchandise. The tenant files a claim for his damaged merchandise. C. An insured is sued for slashing the tires of a competitor's trucks and causing the competitor to lose business. The competitor submits a claim for his loss of business. D. When a new restaurant opens down the street, the insured submits a false story to the newspaper stating that the restaurant is infested by rats. The insured is sued for the false statements.

A. A store manager accuses a young man of shoplifting, apprehends him, and locks him in a storage room until the police arrive. When it is discovered that the young man is innocent, he files a claim against the store.

When a claim payment is made but the corresponding entry has not yet been made, the payment is registered to A. A suspense account. B. A deferred payment account. C. A paid loss account. D. A cash lag account.

A. A suspense account.

An example of an uninsured motor vehicle under the Personal Auto Policy (PAP) is A. A vehicle with insurance for bodily injury liability through a policy that has a limit for bodily injury liability that is less than that required by the state where the named insured's covered auto is principally garaged. B. A vehicle that is self-insured under state law. C. An old travel trailer placed on blocks in the woods and used as a hunting lodge. D. An uninsured dune buggy designed mainly for use on sand while being used on a beach.

A. A vehicle with insurance for bodily injury liability through a policy that has a limit for bodily injury liability that is less than that required by the state where the named insured's covered auto is principally garaged.

The claim that most likely is characterized as a long-tail claim is A. A workers compensation claim involving serious injuries. B. An auto physical damage claim deemed a total loss. C. A general liability claim in which two customers suffered minor burns. D. A homeowners claim for extensive fire and smoke damage.

A. A workers compensation claim involving serious injuries.

Which one of the following best describes an aggregate loss cover reinsurance contract? A. An aggregate loss cover reinsurance contract is often used as a part of insurer acquisitions. B. An aggregate loss cover reinsurance contract allows a reinsurer to protect itself from adverse loss experience. C. An aggregate loss cover reinsurance contract is typically retrospective reinsurance. D. An aggregate loss cover reinsurance contract is typically prospective reinsurance.

A. An aggregate loss cover reinsurance contract is often used as a part of insurer acquisitions.

Because accounting information must allow for comparisons between time periods and among entities, it must be, above all else, A. Consistent. B. Neutral. C. Complete. D. Transparent.

A. Consistent.

Under a deferral-matching approach, the portion of written premium that relates to future coverage periods is considered A. An unearned premium liability. B. An audit premium. C. An earned premium asset. D. A retrospective premium.

A. An unearned premium liability.

The HO-3 policy excludes liability coverage for A. Any motor vehicle that is rented to others. B. A motorized golf cart owned by an insured and used on a golf course. C. A motorized vehicle not requiring registration that is designed for recreational use off public roads and owned by an insured, and used on an insured location. D. A motor vehicle in dead storage on an insured location.

A. Any motor vehicle that is rented to others.

The paid claims development triangle for Goshen Mutual's auto liability book is shown below. On average, when do Goshen Mutual's paid auto liability claims develop most significantly? Paid Claims Development Triangle Paid Claims ($000) as of (months) Accident Year 12 24 36 48 60 20X2 1,750 6,240 12,700 22,900 34,500 20X3 2,220 9,900 26,000 43,440 52,800 20X4 3,050 12,200 27,100 40,060 20X5 3,500 11,770 22,900 20X6 3,550 11,900 20X7 3,800 A. Between the 12 and 24 month valuations B. Between the 24 and 36 month valuations C. Between the 36 and 48 month valuations D. Between the 48 and 60 month valuations

A. Between the 12 and 24 month valuations

Bo was injured in an auto accident while using his car as a taxicab. Bo's car is covered by a Personal Auto Policy (PAP) that included medical payments coverage. Which one of the following statements about Bo's coverage for the accident is correct? A. Bo will not receive medical payments under the PAP because of the Public or Livery Conveyance exclusion. B. Bo will receive medical payments under the PAP under the Vehicles Used in the Business of an Insured coverage provision. C. Bo will not receive medical payments under the PAP because of the Taxi and Omnibus exclusion. D. Bo will receive medical payments under the PAP under the Public or Livery Conveyance coverage provision.

A. Bo will not receive medical payments under the PAP because of the Public or Livery Conveyance exclusion.

Which one of the following is an exclusion to part A of the Personal Auto Policy (PAP)? A. Bodily injury to an insured's employee B. Any organization responsible for the acts of a person using a covered auto C. A prejudgement interest payment D. Bodily injury to any family members using a covered auto

A. Bodily injury to an insured's employee

Which one of the following best describes an accounting issue that arises for reinsurers from bordereaux? A. Bordereaux frequently lack detail. B. Bordereaux are frequently not provided. C. Bordereaux frequently require input from multiple insurers. D. Bordereaux are frequently inaccurate.

A. Bordereaux frequently lack detail.

Which one of the following is true regarding business income coverage under the BOP? A. Business income coverage under the BOP is written on an actual loss sustained basis. B. Business income coverage under the BOP is identical to that of the separate ISO policy. C. The dollar limit of business income coverage under the BOP is relatively high. D. Hurricane Katrina demonstrated that the BOP business income coverage dollar limits were often inadequate.

A. Business income coverage under the BOP is written on an actual loss sustained basis.

Which one of the following is true regarding business income coverage under the BOP? A. Business income coverage under the BOP is written on an actual loss sustained basis. B. Hurricane Katrina demonstrated that the BOP business income coverage dollar limits were often inadequate. C. The dollar limit of business income coverage under the BOP is relatively high. D. Business income coverage under the BOP is identical to that of the separate ISO policy.

A. Business income coverage under the BOP is written on an actual loss sustained basis. Actual loss sustained: Business income coverage covers the actual loss sustained by the insured as a result of direct physical loss or damage to the insured's property by a peril not otherwise excluded from the policy. ... Expiration of the policy does not end the period of restoration.

Which one of the following best describes the U.S. GAAP accounting treatment of ceded loss reserves on an insurer's balance sheet? A. Ceded loss reserves are treated as an asset. B. Ceded loss reserves only appear on the income statement. C. Ceded loss reserves are treated as a liability. D. Ceded loss reserves are treated as an offset to a liability.

A. Ceded loss reserves are treated as an asset.

Which one of the following statements is correct with regard to underwriting guidelines? A. Compliance with underwriting guidelines ensures selection of loss exposures commensurate with planned rate levels. B. One purpose underwriting guidelines serve is to provide for flexible and unstructured decisions. C. The purpose of developing underwriting guidelines is to ensure that an insurer writes only above average accounts. D. Once effective underwriting guidelines are established, they need not be evaluated or modified.

A. Compliance with underwriting guidelines ensures selection of loss exposures commensurate with planned rate levels.

In the claim function, supporting the insurer's profit goal is accomplished through A. Controlling expenses. B. Resisting meritorious claims. C. Underpaying claims. D. Providing prompt, equitable service to policyholders.

A. Controlling expenses.

An insured plumbing contractor is installing copper water lines in a new building for a general contractor. While soldering a connection, the plumber causes a fire that damages the building, including the copper water lines. The plumber is covered under an unendorsed Commercial General Liability (CGL) Coverage Form. Which one of the following best explains how the plumber's CGL Coverage Form applies to a claim for the building damage, including damage to the copper water lines? A. Coverage applies to the building damage but excludes the damage to the copper water lines being installed by the plumber. B. Coverage applies to the building damage including damage to the copper water lines being installed by the plumber. C. Coverage applies because the damaged property was in the plumber's care, custody, and control. D. Coverage does not apply because the general contractor's CGL policy would respond.

A. Coverage applies to the building damage but excludes the damage to the copper water lines being installed by the plumber.

Which one of the following planned retention funding measures is the least formal and the least expensive to administer? A. Current expensing of losses B. Using an unfunded reserve C. Using a funded reserve D. Borrowing funds

A. Current expensing of losses

The extension of exposures method is most closely associated with which one of the following adjustments to premium? A. Current rate level B. Premium trend C. Exposure trend D. Premium development

A. Current rate level The extension of exposures method re-rates every policy to restate the historical premium as the amount that would be charged under the current rates.

The primary method of post-loss policy analysis is the A. DICE method. B. Formula method. C. Financial impact method. D. Scenario analysis method.

A. DICE method.

Antonia and Philip have their house insured with Durham Insurance under an HO-3 homeowner's policy. Philip is the named insured and there is no mortgagee shown on the policy. During a storm, a lightning strike results in a kitchen fire and high winds causes a tree to fall on the roof, leaving a large hole. The homeowners make emergency repairs to protect against further damage and report the loss to the insurer. The claim is assigned to Miguel who identifies the policy and performs an initial review. After discussing the loss with Antonia and Philip, which one of the following will Miguel most likely do? A. Determine whether lightning and windstorm are covered causes of loss and whether any exclusions apply B. Verify whether there is a mortgagee on the property that may need to be included in the loss settlement C. Verify that Antonia meets the policy definition of "insured" and is entitled to receive payment for her portion of the loss D. Take detailed statements from firefighters and neighbors to establish what the actual cause of loss was

A. Determine whether lightning and windstorm are covered causes of loss and whether any exclusions apply

Which one of the following statements is true concerning products liability claims? A. Determining liability in products claims often involves redesigning the product after an accident often involving expert opinion. B. Warnings that accompany the product, if not read or remembered by the claimant, can still be alleged as the cause of the claimant's accident. C. Defending products liability claims is similar for manufacturers than wholesalers and retailers. D. Retailers are not responsible to the claimant if the manufacturer cannot be identified.

A. Determining liability in products claims often involves redesigning the product after an accident often involving expert opinion.

Which one of the following is an essential element of a fleet safety program? A. Driver selection B. Driver logs C. Proper vehicle classification D. Radius of vehicle operation

A. Driver selection

The federal Commercial Motor Vehicle Safety Act (CMVSA) of 1986 requires that A. Drivers of specific large vehicles hold a commercial driver's license (CDL). B. Vehicles be rated according to the individual weight and size of each unit. C. Truckers develop and implement a fleet safety program. D. Commercial vehicles be classified according to the ISO Commercial Lines Manual (CLM) rules.

A. Drivers of specific large vehicles hold a commercial driver's license (CDL).

The Part B—Medical Payments Coverage of the Personal Auto Policy (PAP) contains an Other Insurance provision. If two automobile policies from different insurers cover the same owned vehicle, A. Each insurer pays its pro rata share. B. The policy with the lower limit of liability is primary. C. The first insurer to receive notice of the claim becomes primarily liable. D. The policy with the lower limit of liability is excess.

A. Each insurer pays its pro rata share.

Which one of the following is a fortuitous loss normally excluded by property insurance policies? A. Earthquake B. Vandalism C. Accidental discharge or overflow of water D. Robbery

A. Earthquake

The Canadian Constitution A. Empowers the federal (national) Parliament and provincial legislatures to enact legislation. B. Establishes federal responsibility for managing financial institutions. C. Prohibits national banks from underwriting insurance. D. Prohibits provincial legislatures from enacting legislation.

A. Empowers the federal (national) Parliament and provincial legislatures to enact legislation.

Which one of the following statements is correct with respect to state insurance regulators' involvement in the claim handling process? A. Enforcement of controls by state insurance regulators is usually handled under the Unfair Claims Settlement Practices Act or similar legislation. B. All states currently license claim representatives, and standard procedures and uniform regulation are in place for doing so. C. Market conduct investigations that are periodically performed by insurance regulators are limited to the review of claim practices. D. Consumer complaints to state insurance departments about claim service typically result in the loss of the claim representative's license.

A. Enforcement of controls by state insurance regulators is usually handled under the Unfair Claims Settlement Practices Act or similar legislation.

Which one of the following activities is not an objective of aggregating data for ratemaking purposes? A. Ensuring that the annual period used is a calendar year B. Accurately matching losses and premium for the policy C. Using the most recent data available D. Minimizing the cost of data collection and retrieval

A. Ensuring that the annual period used is a calendar year

Which one of the following statements is correct with respect to the covered causes of loss under the Causes of Loss—Basic Form? A. Explosion includes the explosion of gases or fuel in a furnace or flue. B. Lightning includes artificially generated electrical current. C. Vandalism includes loss by theft. D. Smoke covers damage by smoke from industrial operations or agricultural smudging.

A. Explosion includes the explosion of gases or fuel in a furnace or flue.

Joe's Coffee Shop experiences a fire and the resulting damage will take several months to repair. In an effort to retain customers and retain sales, Joe leases a temporary location a few blocks away. The rent for this temporary location is an example of A. Extra expense. B. Period of restoration expense. C. Extended business income expense. D. Continuing operating expense.

A. Extra expense.

Which one of the following causes of loss is covered by the commercial property policy Causes of Loss—Broad Form but not the Basic Form? A. Falling objects B. Aircraft or vehicles C. Windstorm or hail D. Lightning

A. Falling objects

Every loss exposure has which one of the following elements? A. Financial consequences of loss B. Property exposed to loss C. Tangible asset exposed to loss D. Possibility of direct loss

A. Financial consequences of loss

George works for a large company and part of his job is to monitor assets according to their liquidity. George is particularly concerned that the company fleet cars are affecting its liquidity and rising fuel prices are having an adverse effect during tight economic markets. If George's concerns were categorized as causes of loss according to the quadrants of risk, his concern most directly relates to which one of the following types of risks? A. Financial risks B. Operational risks C. Strategic risks D. Hazard risks

A. Financial risks

Under which one of the following circumstances might an actuary be required to calculate a non-pro rata earning pattern for the premium? A. For policies in which the insurance risk is not evenly spread throughout the policy period B. For multiyear policies in regions with low inflation C. For policies in which the insurance risk is the same throughout the policy period D. When net earnings are less complex and require less estimation

A. For policies in which the insurance risk is not evenly spread throughout the policy period

Which one of the following is a measure of claims incidence and is generally expressed per unit of exposure? A. Frequency B. Loss ratio C. Pure premium D. Severity

A. Frequency

Ratemaking processes that address increased limits factors and deductibles are needed because A. General inflation drives up costs, and trends in costs have a greater impact on increased limits losses than on basic limits losses. B. Many lines of insurance, such as homeowners, commercial property, and umbrella coverage, require increased limits. C. Even as personal wealth has been declining and individuals have fewer assets to protect, they still want more insurance coverage. D. The amount of jury awards has increased, and unlike general inflation, this has a disproportionate impact on increased limits losses.

A. General inflation drives up costs, and trends in costs have a greater impact on increased limits losses than on basic limits losses.

Joe Harris formed a limited liability corporation (LLC) and purchased liability coverage under a Commercial General Liability (CGL) Coverage Form in the name of the LLC. Joe is the sole controlling member. In a casual conversation with a neighbor, Joe made a slanderous remark regarding a storeowner, who upon finding out about the remark, sued Joe for slander. Joe was acting as a private citizen rather than as a member of the LLC. Which one of the following statements explains whether the CGL policy would or would not cover Joe for this claim? A. He would not be covered by the CGL Coverage Form because Joe was not conducting the business of the LLC when the incident occurred. B. He would be covered by the CGL Coverage Form because the LLC is the named insured and Joe is the controlling manager. C. He would not be covered by the CGL Coverage Form because the coverage form excludes slander. D. He would not be covered by the CGL Coverage Form because executive officers and controlling members of an LLC are not considered insureds.

A. He would not be covered by the CGL Coverage Form because Joe was not conducting the business of the LLC when the incident occurred.

Matheson Construction is a residential construction company that specializes in building subdivisions. The company owns four late-model private passenger vans that it uses to transport workers to and from job sites each day. The distance one-way is generally less than 30 miles. During the day, the vans generally sit idle at the job site, unless there are supplies to pick up or other errands to run. Only the job superintendents are allowed to drive the vans, and only if they keep their driving records clean. The company carefully monitors the job superintendents' driving records and requires them to participate in driver safety training programs annually. The company has a stringent inspection and maintenance program for the vehicles as well. In the seven years since the company began transporting workers in this way, there have been no automobile accidents. Which one of the following ratings would an automobile underwriter in a standard market likely give to this risk? A. Highly Desirable B. Desirable C. Average D. Undesirable

A. Highly Desirable

Vera is a forty-five year old, married dental hygienist who lives and works in a small town. She owns a late-model, compact car, which she drives three miles to work each day. Her husband drives a new pick-up truck that he has insured elsewhere. Neither Vera nor her husband has ever had a traffic accident, and both have clean driving records. The couple has no children, and there are no other residents in the household. Which one of the following ratings would an automobile underwriter in a standard market likely give to this risk? A. Highly Desirable B. Desirable C. Average D. Undesirable

A. Highly Desirable

Which one of the following statements is true regarding the agreed value method of property valuation used in some property insurance policies? A. If a total loss occurs, the insurer will pay the agreed value specified in the policy. B. The agree value method in property insurance policies illustrates the principle of indemnity. C. The agreed value method stipulates what the agreed value has to be relative to the true value of the property. D. At the time the policy is written, only the insurer must agree to the value specified in the policy.

A. If a total loss occurs, the insurer will pay the agreed value specified in the policy.

Which one of the following is true regarding the loss elimination ratio (LER) approach to deductible pricing? A. If insureds are forced to purchase higher deductibles, those wanting a lower one may try to artificially inflate claims to make up the additional deductible amount. B. Because the approach does not recognize certain insurer behavioral differences, lower-deductibles policies may end up being more profitable than higher-deductible policies C. Along with capping the amount of dollar credit from the deductible, flat-dollar deductibles address one of the approach's limitations. D. Unlike increased limit factor (ILF) pricing, the LER approach for deductibles assumes that claimant behavior will be the same for each deductible.

A. If insureds are forced to purchase higher deductibles, those wanting a lower one may try to artificially inflate claims to make up the additional deductible amount.

An adjustment for risk in the commutation of a reinsurance agreement A. Increases the economic value. B. Decreases the economic value. C. Does not affect the economic value. D. Equals the economic value.

A. Increases the economic value.

The Credit Card, Electronic Fund Transfer Card or Access Device, Forgery and Counterfeit Money Coverage—Increased Limit endorsement may be appropriate for A. Insureds who hold credit cards. B. Insureds who pay their bills online. C. Insureds who use automated teller machines. D. Insureds who tend to overspend because of credit availability.

A. Insureds who hold credit cards.

Which one of the following is true regarding claims-related expenses? A. Insurers categorize loss adjustment expenses (LAE) as either defense and cost containment (DCC) or adjusting and other (A&O) expenses. B. ALAE is, among an insurer's employees, always defined the same way to meet external reporting requirements and internal claims management needs. C. A&O includes claims adjusting costs only as they are difficult to attribute to an individual claim. D. Unless otherwise indicated, the term "claims" denotes claims data without including allocated loss adjustment expenses (ALAE).

A. Insurers categorize loss adjustment expenses (LAE) as either defense and cost containment (DCC) or adjusting and other (A&O) expenses.

Some umbrella policies combine an excess policy and an umbrella policy in one policy, using the letters "A" and "B." A and B refer to the A. Insuring Agreements. B. Duties Following a Loss. C. Conditions. D. Exclusions.

A. Insuring Agreements.

Stu is a high school student. Stu and three of his friends decided on a car-pool arrangement to get to school instead of taking the bus. Stu would drive his mom's car, and each friend would chip in towards gas. Stu did not inform his parents of his plans. While driving to school on the first day of the car-pool arrangement, Stu and his passengers saw a science teacher who had recently given Stu a low grade. In an attempt at revenge, Stu drove his mom's car into the teacher's car, causing moderate damage to both vehicles. The teacher pressed charges and also made a property damage claim against Stu, who turned the claim over to the family's Personal Auto Policy (PAP) insurer. The insurer denied coverage based on an exclusion in the PAP. Which one of the following exclusions applies to this incident? A. Intentional injury B. Vehicles owned by or available for family member's regular use C. Public or livery conveyance D. Vehicle used without reasonable belief of being entitled

A. Intentional injury

Which one of the following is a type of administrative agency rule that describes the meaning of statutes to provide guidance for agency staff or regulated parties? A. Interpretative rule B. Substantive rule C. Procedural rule D. Legislative rule

A. Interpretative rule

Chloe is a claim representative with Fredine Insurance Company. She has been assigned a personal lines automobile claim for insureds, Oscar and Sara. Oscar and Sara were involved in an accident with another vehicle, and there is damage to both vehicles. In addition, the driver of the other vehicle and Sara each suffered minor injuries in the accident and were treated in the emergency room. Chloe follows the usual steps in the claim handling process. She identifies the policy and sets her initial reserves. She also confirms the details of the accident in a conversation with Oscar and Sara. Using the framework for the claim handling process, which one of the following will most likely be Chloe's next step? A. Investigate the claim. B. Confirm the loss reserves with Oscar and Sara. C. Conclude the claim. D. Determine the loss amount.

A. Investigate the claim.

The variable permissible loss ratio A. Is calculated by subtracting the sum of the variable expense provision and the underwriting profit provision from 100 percent. B. Represents the dollar amounts available to pay for losses, loss adjustment expenses, and fixed expenses. C. Represents the percentage of each premium dollar that was spent on allocated loss adjustment expenses. D. Is calculated by adding the variable expense provision and the underwriting profit provision.

A. Is calculated by subtracting the sum of the variable expense provision and the underwriting profit provision from 100 percent. Variable Permissible Loss Ratio - the percentage of each premium dollar that is intended to pay for the projected loss and fixed expense components. Variable Permissible Loss Ratio = 1 - Variable Expense Provision - UW Profit Prov.

With respect to a nonowned vehicle, medical payments coverage under a Personal Auto Policy (PAP) A. Is excess over other collectible auto insurance that pays medical expenses. B. Is primary for medical and funeral expenses. C. Is shared on a pro rata basis. D. Are specifically excluded from coverage.

A. Is excess over other collectible auto insurance that pays medical expenses.

Which one of the following best explains the concept of residual uncertainty, as relates to estimation of the financial consequences of risk? A. It is the level of risk that remains after implementing risk management plans. B. It is the difference between estimated subjective risk and calculated objective risk. C. It is the amount invested in risk management in order to eliminate concern. D. It is uncertainty regarding the value of any residual salvage that would remain after a loss.

A. It is the level of risk that remains after implementing risk management plans.

Which one of the following presents a challenge in adjusting a residential personal property claim? A. It's often difficult to determine that the property existed and was lost. B. Scheduled coverage is usually more restrictive in terms of causes of loss covered. C. Scheduled coverage requires the adjuster to replace rather than repair the property. D. The insured is not required to prepare an inventory for property that was stolen.

A. It's often difficult to determine that the property existed and was lost.

Which one of the following statements is true regarding loss reserves and the unearned premium reserve? A. Loss reserves and the unearned premium reserve cover different portions of claim obligations with no overlap. B. A deficiency in one of these types of reserves indicates a deficiency in the other type. C. Loss reserves cover claim obligations, while the unearned premium reserve covers only unearned premiums and not claim obligations. D. Both loss reserves and the unearned premium reserve cover claim obligations with some overlap.

A. Loss reserves and the unearned premium reserve cover different portions of claim obligations with no overlap.

A primary objective of insurance regulation is to A. Maintain insurer solvency. B. Enforce insurance rebates. C. Introduce new insurance legislation. D. Introduce new policy language.

A. Maintain insurer solvency.

Which one of the following correctly describes a typical element of an insurance product marketing plan? A. Marketing goals outline the proposed target market including detailed sales projections and how success will be measured. B. The product proposal and sales goals focus on detailed sales projections and estimated annual profits from the new product. C. Production planning determines the procedures involved in actually producing the proposed new product. D. Situational analysis focuses on the company's internal environment and how it will affect the proposed new product.

A. Marketing goals outline the proposed target market including detailed sales projections and how success will be measured.

The exhibit below shows the ratio of closed to reported claims count for Metford Insurance's general liability book. Lucy has been asked to review the exhibit and report her observations to the claim management team. Which one of the following observations is true based on the limited information provided? Ratio of Closed to Reported Claims Counts Ratio of Closed-to-Reported Claim Counts as of (months) Accident Year 12 24 36 48 60 72 20X1 0.130 0.360 0.520 0.756 0.896 0.964 20X2 0.148 0.405 0.690 0.848 0.910 20X3 0.144 0.476 0.685 0.830 20X4 0.240 0.526 0.720 20X5 0.252 0.584 20X6 0.276 A. Medford's general liability claims are settling more quickly than in the past. B. Medford recently began including claims with no payment in the definition of closed claims counts. C. More of Medford's general liability policies are being sold with deductibles than in the past. D. More of Medford's general liability claims are going to litigation than in the past.

A. Medford's general liability claims are settling more quickly than in the past.

Sandra, whose car is covered by a Personal Auto Policy (PAP), was injured in an accident along with her neighbors who were riding as guests in her car. Tragically, the neighbors' daughter was killed in the accident. All of the following are categories of expenses resulting from the accident that would generally be paid under Sandra's medical payments coverage, EXCEPT: A. Medical services rendered within five years of the accident B. Funeral service expenses C. Medical expenses for injuries sustained by Sandra's neighbors riding in the car D. Surgical expenses for Sandra's neighbors

A. Medical services rendered within five years of the accident Most Med-Pay coverage terms require the medical treatment to be concluded within two years from the date of the auto collision.

Tania has been unemployed for six months, and her unpaid bills are mounting. She recently damaged the front fender of her vehicle after running off the road. When seeking repairs to the vehicle, she convinced the auto body shop to include damages from previous incidents in the estimate. This would allow her to collect extra money from her insurer. From an insurance and risk management perspective, Tania's behavior is indicative of a A. Moral hazard. B. Physical hazard. C. Legal hazard. D. Morale hazard.

A. Moral hazard.

Is collapse a peril insured against under Coverages A and B of the HO-3 policy? A. No, but coverage for collapse that results from some other causes of loss is provided under the Section I—Property Coverages. B. No, collapse is not covered even if it results from some other cause of loss. C. Yes, it is a covered peril. D. Yes, it is a covered peril but it is subject to special sublimits.

A. No, but coverage for collapse that results from some other causes of loss is provided under the Section I—Property Coverages.

Ella Fitzpatrick is retired and living in an adult retirement community. She has a 15-year-old sedan that she keeps for family outings when her children and grandchildren visit. Because she rarely uses the vehicle, and she tries to reduce expenses, Ella has a personal automobile policy with the following low coverage limits which satisfy the minimum requirements of her state: Part A—Liability Coverage $20,000/$40,000/$10,000 limits Part B—Medical Payments Coverage $1,000 per person Part C—Uninsured Motorists Coverage $20,000 combined single limit While on a family outing to a local beach in her state, Ella allowed her grandson, George, to drive her car. George was at fault when he failed to yield to a compact car at an intersection and collided. He injured the driver and passenger of the compact car, causing $15,000 in bodily injuries. The compact car, which has a value of $10,000 was totaled. Ella and George were injured. Ella had medical bills totaling $3,000. George had medical bills totaling $8,000. Assume that the driver of the compact car had $25,000 in damages, and he was able to collect $20,000 for those damages from Ella's policy. What amount, if anything, would the driver of the compact car be able to collect from the uninsured motorist coverage provided by his own personal automobile policy? A. Nothing B. $1,000 C. $5,000 D. $25,000 (or the coverage limit, whichever is less)

A. Nothing

While on her way to a business appointment, Sara is involved in an automobile accident. She suffers minor injuries as a result and is not sure which insurance policy should cover her expenses. She may be able to recover from her personal auto insurer or from her employer's workers compensation insurer. This is an example of which one of the following other sources of recovery? A. Other insurance in dissimilar policies B. Noninsurance agreements C. Other insurance in the same policy D. Other insurance in a similar policy

A. Other insurance in dissimilar policies

Brenda wrote a poem that she sent to her sister who sold the poem to a recording company. Learning of the sale, Brenda became upset. If Brenda has an insurable interest in the poem she wrote as a type of "property," the legal basis of her insurable interest arises out of A. Ownership interest in property. B. Contractual obligations. C. Factual expectancy. D. Representation of another party.

A. Ownership interest in property.

Jeremy is a bailee who insures bailor Sam's property for Sam's benefit. Jeremy has an insurable interest in the property, but if Sam's property becomes damaged or destroyed, Jeremy A. Pays any awarded insurance proceeds to Sam. B. Splits the proceeds from any insurance settlement with Sam. C. Retains all payable insurance proceeds. D. Has no right to any insurance proceeds because it is not his property.

A. Pays any awarded insurance proceeds to Sam.

While inside a restaurant, a customer sprains his ankle after falling on a slippery floor. The commercial general liability loss exposure for the restaurant owner in this example is known as A. Premises liability. B. Contractual liability. C. Operations liability. D. Products liability.

A. Premises liability This is a premises liability loss exposure because it arose from restaurant owner's possession of real property.

An underwriter's estimate of the largest loss that is likely to occur is called the A. Probable maximum loss. B. Normal loss expectancy. C. Maximum possible loss. D. Maximum foreseeable loss.

A. Probable maximum loss.

Under the HO-3 policy Section I—Conditions, the Abandonment of Property Condition A. Provides that if the insured abandons the property after it is damaged, the insurer need not take over responsibility for it. B. Outlines a method for resolving disagreements between the insured and the insurer. C. Establishes how the amount to be paid for a property loss will be determined. D. States that the insurer will adjust all losses with the insured or the insured's spouse, if a resident in same household.

A. Provides that if the insured abandons the property after it is damaged, the insurer need not take over responsibility for it.

The goal of regulating insurance rates is aimed at ensuring that A. Rates are adequate, not excessive, and not unfairly discriminatory. B. Insurance rates are consistent for individuals and entities throughout the United States. C. Rates for a given type of business meet the minimum requirements specified for each state. D. All insureds in a specified territory pay the same rates.

A. Rates are adequate, not excessive, and not unfairly discriminatory.

Which one of the following is a way for regulators to minimize wide swings in the underwriting cycle? A. Reduce the lag time in the rate approval process B. Not call attention to whether a market is hard or soft C. Increase insurance rates significantly D. Order that certain insurers withdraw from their markets

A. Reduce the lag time in the rate approval process

A large task facing insurers is keeping current on new regulations or changes in regulations. Which one of the following statements is true regarding insurers staying in compliance with regulatory changes? A. Regulators publish nonemergency rules before their effective dates. B. All regulations affecting insurance originate in insurance departments. C. It is unlawful for insurers to rely on service providers for the latest regulatory information. D. Insurance departments are prohibited from posting current regulatory information online.

A. Regulators publish nonemergency rules before their effective dates.

Which one of the following rating mechanisms would produce a rate that most closely matches the insured's actual loss experience under an insurance policy? A. Retrospective rating B. Experience rating C. Schedule rating D. Classification rating

A. Retrospective rating

A commercial insurer has historically targeted small businesses. It is considering expanding its market to middle market organizations. To succeed, the insurer will need to develop a level of expertise in which one of the following areas? A. Risk financing alternatives B. Claims handling C. Auditing D. Regulatory controls

A. Risk financing alternatives

All of the following are policy conditions that apply to both Sections I and II of the HO-3 policy, EXCEPT: A. Severability of Insurance B. Death C. Liberalization D. Nonrenewal

A. Severability of Insurance Severability of Insurance is a Section II condition only.

After being approached by several different insurance companies, Charles Construction decided to market its program at renewal time. The contractor was offered competitive proposals from four different insurers. The proposals included options with lower premiums than the expiring, and also options offering higher limits of insurance. Which one of the following types of underwriting cycles is Charles Construction experiencing? A. Soft market B. Inflationary cycle C. Hard market D. Catastrophic cycle

A. Soft market Charles Construction is experiencing a soft market. The increased competition, lower premiums, and abundant availability of limits are all characteristics of a soft market.

Property insurance coverage on dwellings and other structures covering all causes of loss not specifically excluded is known as A. Special form coverage. B. Functional replacement cost coverage. C. Named perils coverage. D. Replacement cost coverage.

A. Special form coverage.

Jane always drives to visit her children who live one thousand miles away. She enjoys driving and feels safer in a vehicle than on an airplane because she feels she has more control of her fate. This driving versus flying decision is an example of A. Subjective risk. B. Speculative risk. C. Nondiversifiable risk. D. Objective risk.

A. Subjective risk.

Business continuity management is primarily designed to meet which one of the following risk management goals? A. Survival B. Tolerable uncertainty C. Social responsibility D. Growth

A. Survival

With the standard increased limit factor (ILF) approach, A. The actuary uses historical data to calculate the indicated ILFs, although the results may be volatile. B. Claims information in the layers of loss being studied is relied on heavily, providing consistent and reliable results. C. Determining a distribution representative of the expected losses is a major challenge. D. The actuary typically does not make the assumption that the frequency is the same for all risks.

A. The actuary uses historical data to calculate the indicated ILFs, although the results may be volatile.

Ian has a Personal Auto Policy (PAP) to cover his owned vehicle. Ian works for a bakery and drives his employer's van on weekdays making deliveries. The bakery has a workers compensation policy covering all of its employees, but has let the commercial auto insurance covering the delivery van expire. Ian is injured in an accident while driving the van making a delivery and sustains medical bills of $1,000. Ian's injury is the type for which workers compensation benefits are required. Ian's medical bills will be paid by A. The bakery's workers compensation insurer. B. Ian. C. Ian's PAP insurer and the bakery's workers compensation insurer on a shared basis. D. Ian's PAP insurer.

A. The bakery's workers compensation insurer.

Which one of the following best describes the potential effect when the categorization of defense costs changes from loss adjustment expenses (LAE) by the ceding company to losses by the assuming company under a reinsurance contract? A. The change in categorization will distort analyses of losses versus LAE on a combined industry basis. B. The change in categorization is an exception to the risk transfer rules of statutory financial reporting. C. The change in categorization will have no appreciable or material effect. D. The change in categorization will necessitate a change in the terms of the reinsurance contract.

A. The change in categorization will distort analyses of losses versus LAE on a combined industry basis.

Which one of the following statements is correct regarding the marketing value of the claim function? A. The claim adjusting process can be a source of new coverage ideas and product niche innovations. B. The marketing department relies on policy features rather than customer satisfaction with claim settlement to market insurance products. C. Producers typically do not require policyholder loss information in order to service their customers' accounts. D. The other services an insurer performs for customers often compensate for poor claims performance.

A. The claim adjusting process can be a source of new coverage ideas and product niche innovations.

A claim representative is handling a claim for a commercial manufacturing plant that was completely destroyed by fire. The building is insured for $2,500,000 on an actual cash value (ACV) basis. Which one of the following statements is true regarding the claim adjustment process for this claim? A. The claim representative should have a solid accounting report that establishes motive before considering asserting an arson defense. B. To determine the ACV of the building, the claim representative should use the amount shown for depreciation in the insured's financial records. C. In addition to working with an architect to develop building specifications, the claim representative will need to engage a contractor to perform the reconstruction on the plant. D. If there is a mortgageholder involved, the claim representative must be sure to make the claim settlement check payable only to the mortgageholder.

A. The claim representative should have a solid accounting report that establishes motive before considering asserting an arson defense.

A not-for-profit public interest group posted a newspaper editorial on its electronic chatroom that falsely accused a local politician of criminal activity. The public interest group is insured under an unendorsed Commercial General Liability (CGL) policy. The politician who was falsely accused filed suit against the public interest group for libel. Which one of these statements best describes the probable response the public interest group will receive from its insurer after the insurer reviews these facts? A. The claim will be denied because Coverage B of the CGL policy excludes any injury arising out of an electronic chatroom or electronic bulletin board that is owned, hosted, or controlled by the insured. B. The claim will be covered because the territory of Coverage B of the CGL policy is worldwide for personal and advertising injury offenses that take place through the Internet. C. The claim will be denied because Coverage B of the CGL policy excludes criminal acts arising out of a criminal act committed by or at the direction of the insured. D. The claim will be covered because libel is a covered offense under Coverage B of the CGL policy.

A. The claim will be denied because Coverage B of the CGL policy excludes any injury arising out of an electronic chatroom or electronic bulletin board that is owned, hosted, or controlled by the insured.

Which one of the following best describes a report date? A. The date when the insurer receives notice of the claim B. The date on which the covered injury occurs C. The date on which the insurer issues the policy D. The date on which a transaction is made

A. The date when the insurer receives notice of the claim

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

A. The higher an insurer's premium-to-surplus ratio, the greater its ability to expand premium writings. The ratio is computed by dividing net premiums written by surplus. The lower the ratio, the greater the company's financial strength. State regulators across USA have established a premium-to-surplus ratio of no higher than 3-to-1 as a guideline.

Which one of the following statements is true regarding "aircraft liability" coverage under the HO-3 policy? A. The homeowners policy excludes all aircraft liability. B. Hobby aircraft that do not carry people or cargo are considered to be "aircraft" in the HO-3 policy. C. Model airplanes that do not carry people or cargo are considered to be "aircraft" in the HO-3 policy. D. If the insured flies her radio-controlled model airplane through a neighbor's picture window, the resulting liability claim would not be covered.

A. The homeowners policy excludes all aircraft liability.

The Random Bookstore (Random) is covered by an unendorsed Commercial General Liability (CGL) Coverage Form. A customer in the store tripped over her untied shoelace and fell, breaking her right arm. Which one of the following is a reason Random's insurer might refuse to pay any damages under Random's CGL policy? A. The insured must be legally obligated before the insurer has the duty of paying. B. The definition of bodily injury in the CGL policy does not include this type of injury. C. This is not an occurrence as defined by Random's CGL policy. D. Premises-type claims are excluded by Random's basic CGL policy.

A. The insured must be legally obligated before the insurer has the duty of paying.

Which one of the following statements is correct regarding the occupancy hazard in property underwriting? A. The loss potential of a particular occupancy can be evaluated by examining the contents' ignition sources, combustibility, and susceptibility. B. An insured's practices in controlling its hazards does not make a significant difference in the acceptability of an account with combustible contents. C. Office occupancy is considered relatively high-hazard when compared to other types of occupancy. D. Mercantile occupancies are generally low-hazard occupancies with limited risk of significant loss.

A. The loss potential of a particular occupancy can be evaluated by examining the contents' ignition sources, combustibility, and susceptibility.

Historical cost is A. The price at which an asset or liability was originally obtained. B. The price determined by a model of all similar assets or liabilities. C. The price that would be received to sell an asset or liability under optimal market conditions. D. The price that similar assets or liabilities have been sold under similar market conditions in the past.

A. The price at which an asset or liability was originally obtained.

Justin has a Commercial Package Policy (CPP) that has a Building and Personal Property Coverage Form (BPP) with a Causes of Loss—Broad Form covering his building with a $750,000 limit. A tropical storm struck Justin's building and the strong winds tore most of the shingles from the building's roof and shattered multiple windows on the 5th floor of the building. The rain from the storm caused water to enter Justin's building through the foundation, which caused significant damage to the first and second floors. Justin had equipment stored in closets on the first and second floors which were rendered inoperable due to the water damage. The total amount of damages was $40,000 for the windows and shingles; $110,000 for water damage to the first and second floors; $9,000 for the equipment on the second floor; and $7,000 for the equipment on the first floor.How much will Justin's insurer pay for damage to the first and second floors, including the equipment? A. The losses are not covered. B. $110,000 C. $126,000 D. $166,000

A. The losses are not covered. The water damage losses to the first and second floors are not covered due to the water exclusion.

According to Part D—Coverage for Damage to Your Auto of a Personal Auto Policy (PAP), the insurer's limit of liability for a physical damage loss to a covered auto is A. The lower of the actual cash value or the amount necessary to repair or replace the property with other property of like kind and quality. B. The estimated value as established by at least two auto appraisers. C. The lower of the cost to repair the vehicle or the total loss value. D. The "blue book" value of the vehicle, taking into consideration the odometer reading and the vehicle condition.

A. The lower of the actual cash value or the amount necessary to repair or replace the property with other property of like kind and quality.

All of the following are included as insureds for the Section II—Liability Coverages of a homeowners policy, EXCEPT: A. The named insured's 30-year-old best friend who is not related but becomes a temporary resident of the named insured's household B. The named insured's neighbor while caring for the insured's dog if the dog causes injury while in the neighbor's care C. The 19-year-old exchange student who temporarily lives with and under the care of the named insured and his spouse D. The named insured's spouse who lives with the named insured but is away on business most Mondays through Fridays

A. The named insured's 30-year-old best friend who is not related but becomes a temporary resident of the named insured's household

Which one of the following statements is correct with respect to workers compensation underwriting? A. The off-premises hazard has three elements: the duration of travel, the mode of transportation, and the hazards at remote job sites. B. Seasonal employees tend to be better trained and more attentive to work safety than full-time employees. C. Employee morale is generally not a factor considered when underwriting workers compensation insurance. D. The standard workers compensation policy for a contractor specifically excludes coverage for employees of any uninsured subcontractors.

A. The off-premises hazard has three elements: the duration of travel, the mode of transportation, and the hazards at remote job sites.

Insurers charge an initial deposit premium on a policy when A. The policy is formally agreed to before all contract details have been finalized. B. An estimate of the ultimate premium is readily available. C. The policy is not subject to adjustment. D. The policy is endorsed mid-term.

A. The policy is formally agreed to before all contract details have been finalized.

An underwriter is comparing workers compensation submissions on two accounting firms, Firm A and Firm B. Each firm employs roughly 350 employees. Firm A occupies two floors in a prominent high rise building in a major metropolitan area. Employees are not required to travel. Firm B, located in the same metropolitan area, has multiple offices spread throughout the city to facilitate client visits. Housekeeping and maintenance hazards are similar among the firms. Firm A poses a greater single loss exposure due to A. The potential for many injuries or deaths resulting from a single incident. B. The fact that loss experience is typically higher for single location firms. C. The special hazards associated with the accounting firm classification. D. Higher employee turnover rates for single location firms.

A. The potential for many injuries or deaths resulting from a single incident.

Which one of the following statements is true regarding the relationship between the size of the property policy deductible and the premium reduction? A. The premium credit increases much more slowly than the size of the deductible. B. The premium credits tend to encourage the use of small deductibles and the practice of dollar trading. C. The premium credit increases much more rapidly than the size of the deductible. D. The premium reduction is directly proportional to the size of the deductible.

A. The premium credit increases much more slowly than the size of the deductible.

The most accurate definition of a rate is A. The price per exposure unit for insurance coverage. B. A charge for insurance which is not inadequate, excessive, and unfairly discriminatory. C. The total of all actual costs of a risk transfer. D. An estimate of the expected value of future costs of an insurance coverage.

A. The price per exposure unit for insurance coverage.

Under a per occurrence excess of loss treaty, the attachment point and the reinsurance limit apply to A. The total losses arising from a single event affecting one or more policies. B. All losses from a single event affecting liability and property insurance within the same policy. C. Each loss arising from a single event affecting one or more policies. D. Each loss from a single event affecting multiple coverages within the same policy.

A. The total losses arising from a single event affecting one or more policies.

Gawne Manufacturing (Gawne) owns a manufacturing facility that is insured under an unendorsed Commercial General Liability (CGL) Coverage Form. Gawne also has a commercial auto policy. An unregistered truck, not subject to a compulsory or financial responsibility law, is used solely on the premises to move supplies around the facility. Recently, the truck collided with a customer's automobile, which was parked on the premises. Which one of the following statements is true with regard to Gawne's truck? A. The truck is considered mobile equipment and the claim would be covered under Gawne's CGL policy. B. No coverage for the truck would apply under either Gawne's CGL or automobile policy. C. The claim should be referred to Gawne's automobile insurer for possible coverage. D. The auto definition applies because this is a motor vehicle designed for travel on public roads.

A. The truck is considered mobile equipment and the claim would be covered under Gawne's CGL policy.

BBC Manufacturing (BBC) has an unendorsed Commercial General Liability (CGL) Coverage Form. BBC has expanded its sales outside the United States. Due to injuries from alleged defective products of BBC, lawsuits are brought in Europe, Mexico, Canada and Puerto Rico. Which one of the following statements describes the extent for which BBC's insurer will provide coverage or defense in these jurisdictions? A. There is coverage and defense for Canada and Puerto Rico, since these are covered territories. B. There is coverage and defense for the Puerto Rico lawsuit only as it is a territory of the United States. C. There is coverage and defense for all but the European suits since Europe is not part of the territory covered. D. There is no coverage or defense, as none of these jurisdictions meet the territorial requirement.

A. There is coverage and defense for Canada and Puerto Rico, since these are covered territories.

Which one of the following is correct regarding the Transportation Network Driver Coverage (No Passenger) endorsement and the Limited Transportation Network Driver Coverage (No Passenger) Endorsement to the personal auto policy? A. They both exclude coverage when a passenger is occupying the vehicle. B. They cost the same amount of additional premium. C. They both end coverage when an insured accepts a passenger's request. D. They both provide coverage until a passenger enters the vehicle.

A. They both exclude coverage when a passenger is occupying the vehicle.

Risk management concepts in one form or another apply A. To all companies and families. B. Only to large companies. C. Only to international companies. D. To all companies but not families.

A. To all companies and families.

The personal and advertising injury limit is the most the insurer will pay under Coverage B of the CGL policy for damages arising out of personal and advertising injury A. To any one person or organization. B. During the policy period. C. Per insured. D. From any one type of offense.

A. To any one person or organization.

Which one of the following is true regarding the aggregation of claims data? A. Tracking claims by accident year is valuable when there is a change because of economic or regulatory forces or major claims events. B. The grouping of claims by calendar year is similar to the grouping of claims by underwriting year that reinsurers frequently use. C. In many respects, policy year aggregation has become the accepted norm for property-casualty insurers in the U.S. and Canada. D. A calendar year extends over a twenty-four-month period, generally resulting in a longer time until all claims are reported.

A. Tracking claims by accident year is valuable when there is a change because of economic or regulatory forces or major claims events.

In general, to be understandable, information contained in financial reports must be intelligible, clearly disclosed, and A. Transparent. B. Relevant. C. Reliable. D. Consistent.

A. Transparent.

Which one of the following is a type of excess insurance that is broader than ordinary excess liability insurance? A. Umbrella policy B. "Following-form" policy C. Self-contained policy D. Excess & Surplus Lines policy

A. Umbrella policy

Concerning claims-related expenses, A. Unallocated loss adjustment expenses (ULAE) are those that cannot be readily associated with a specific claim. B. The new labels of A&O and DCC are the most widely used and accepted terms to describe claims-related expenses. C. Defense and cost containment (DCC) expenses are those incurred for determining coverage and settling claims. D. Adjusting and other (A&O) expenses are those incurred for private investigation and surveillance.

A. Unallocated loss adjustment expenses (ULAE) are those that cannot be readily associated with a specific claim.

Regarding the use of deductibles on liability insurance policies, which one of the following statements is true? A. Under liability policies that include a deductible, the insurer usually pays all defense costs on a first-dollar basis. B. Under liability policies that include a deductible, insurers typically do not want to be notified of incidents that insureds deem to be minor. C. Before making payments to third-party claimants, liability insurers must first subtract the deductible amount from the agreed-upon settlement. D. Typically, the use of liability policy deductibles substantially reduces policy premium.

A. Under liability policies that include a deductible, the insurer usually pays all defense costs on a first-dollar basis.

Under U.S. regulatory accounting, the liability for extended reporting endorsements covering a definite period into the future is recorded as A. Unearned premium reserves. B. Written premium. C. Earned premium. D. Loss reserves.

A. Unearned premium reserves.

If the Replacement Cost optional coverage of the Building and Personal Property Coverage Form (BPP) is selected, tenants' improvements and betterments are A. Valued at replacement cost if the tenant actually repairs or replaces them, at its own cost, as soon as reasonably possible after the loss. B. Not covered because replacement cost coverage does not apply to buildings or their fixtures and fittings. C. Valued on a replacement cost basis regardless of whether the tenant elects to replace them or not. D. Specifically excluded from replacement cost coverage and valued at ACV only.

A. Valued at replacement cost if the tenant actually repairs or replaces them, at its own cost, as soon as reasonably possible after the loss.

At what earliest point in time will a claims professional establish an initial case outstanding for a reported claim? A. When the claims professional recognizes that a liability may exist for a covered incident. B. When the insurer receives a claim notice from the insured, from an intermediary, or to a call center. C. When the claims professional knows that liability exists for a covered incident. D. When the claim notice is received via a lawyer's letter with a formal statement of claim.

A. When the claims professional recognizes that a liability may exist for a covered incident.

Under a deferral-matching approach, which one of the following determines whether a pro rata or non-pro rata approach should be used to calculate the unearned premium reserve? A. Whether the associated coverage is evenly spread over the policy term B. Whether the premium is paid in advance or a payment schedule is adopted C. The approach specified in the Declarations page of the policy D. The approach adopted by the insurer as a general practice

A. Whether the associated coverage is evenly spread over the policy term

Which one of the following statements is correct regarding a liability insurance policy with a self-insured retention (SIR)? A. With an SIR, the full policy limit is payable on top of the SIR. B. With an SIR, the insurer defends all claims on a first dollar basis. C. With an SIR, the insurer pays all covered losses, and then bills the insured for the amount up to the SIR. D. With an SIR, the insured must report every claim to the insurer.

A. With an SIR, the full policy limit is payable on top of the SIR.

An insured has a Personal Auto Policy (PAP) that includes medical payments coverage. The insured crashed his car while trying to be the first car to pull away from a stop at a red light when the light turned green. The insured A. Would be eligible for medical payments under the Personal Auto Policy (PAP) as the occupant of a covered auto. B. Would not be eligible for medical payments under the Personal Auto Policy (PAP) because he is being reckless. C. Would not be eligible for medical payments under the Personal Auto Policy (PAP) because of the exclusion for racing. D. Would be eligible for medical payments under the Personal Auto Policy (PAP) because occasional racing is permitted by exception to the exclusion for racing.

A. Would be eligible for medical payments under the Personal Auto Policy (PAP) as the occupant of a covered auto.

Bill carves duck hunting decoys for sale in the basement of his home, which is insured with an HO-3 policy. This is his full-time job. One day, a customer picked up a sharp chisel after Bill told him not to touch it because it was dangerous. The customer mishandled it and severely cut his hand, requiring several stitches at the local emergency room. Would the Medical Payment to Others coverage in the HO-3 apply in this situation? A. Yes, if Bill's policy was endorsed with the Home Business Insurance Coverage endorsement B. Yes, if Bill's policy was endorsed with the Personal Injury Coverage endorsement C. No, because of the Home Crafter exclusion in the HO-3 D. No, because of the Personal Injury Liability exclusion in the HO-3

A. Yes, if Bill's policy was endorsed with the Home Business Insurance Coverage endorsement

Jackie insures her home with an HO-3 policy. She operates a seamstress service from her home. A customer was picking up some altered pants, tripped on a loose floorboard on her porch, and was injured. Is there coverage for this claim? A. Yes, if Jackie's policy was endorsed with the Home Business Insurance Coverage endorsement B. Yes, if Jackie's policy was endorsed with the Personal Injury Coverage endorsement C. No, because of the Business Liability Exclusion in the HO-3 D. No, because of the Home Business Exclusion in the HO-3

A. Yes, if Jackie's policy was endorsed with the Home Business Insurance Coverage endorsement

The HO-8 policy contains a special building valuation clause that specifies that damage will be covered on a A. Actual cash value basis. B. Functional replacement cost basis. C. Historical cost basis. D. Replacement cost basis.

B. Functional replacement cost basis.

Dan owns a bike repair shop which is located on the first floor of a 3 story building owned by Jane. Jane uses the third floor for her own business and rents out the second floor to a graphic design studio. While doing some bike repair work, Dan accidentally started a fire which spread throughout the entire building. The damage from the fire consisted of : i) damage to Dan's business personal property - $125,000; ii) damage to the bike repair shop building rented to Dan - $250,000; iii) damage to the remainder of the building - $300,000; and iv) bodily injury to a customer of the graphic design studio on the 2nd floor - $300,000. Dan's bike repair shop is insured by a Commercial General Liability policy (occurrence version) with no deductible and no endorsements. The insurer has determined that Dan is legally liable for all the damages. The policy's each occurrence limit is $1,000,000; the Damage to Premises Rented to You limit is $100,000; and the policy's general aggregate is $2,000,000. Under the Commercial General Liability policy, how much will the insurer pay for damage to the bike repair shop building rented to Dan? A. $0 B. $100,000 C. $150,000 D. $250,000

B. $100,000

Jared had a Personal Auto Policy (PAP) with a single limit of $100,000 for bodily injury and property damage liability. He was found to be at fault for an accident by a court and a $95,000 judgment was entered against him. In addition, prejudgment interest of $10,000 was awarded. Since entry of judgment, $1,000 in postjudgment interest has accrued. Jared earns $150 a day in salary and missed five days of work to attend the trial. His insurer spent $25,000 defending the lawsuit against Jared. Which one of the following is the total that should be paid by Jared's insurer under his PAP? A. $126,000 B. $126,750 C. $131,000 D. $131,750

B. $126,750 $126,750 = $95,000 (judgment) + $5,000 (prejudment interest of $10,000, but subject to limit of liability of $100,000) + $1,000 (postjudgment interest is a supplementary payment) + $750 (loss of earnings because of attendance at trial up to $200 a day) + $25,000 (defense costs).

Donna owns a car insured by a Personal Auto Policy (PAP) with the minimum liability limits required by her state, $10/$20/$5. While on vacation in another state where the minimum liability limits are $15/$30/$5, she causes an accident. For purposes of that loss, her liability limits under her PAP are A. $10/$20/$5. B. $15/$30/$5. C. $15/$30/$10. D. $25/$50/$15.

B. $15/$30/$5.

A building and its contents are insured under Building and Personal Property Coverage Form (BPP) with the agreed value option in effect. The Limit of Insurance is $1,000,000, with a $5,000 deductible. The agreed value shown in the policy is $1,500,000. How much will the insurer pay if the insured sustains a $300,000 loss by an insured peril? A. $175,000 B. $195,000 C. $200,000 D. $300,000

B. $195,000 $300,000 * ($1,000,000 / $1,500,000) = $200,000 - $5,000 = $195,000

The exhibit below shows the incremental paid claims triangle for Three Hills Insurance. For claims that occurred during accident year 20X6, how much did Three Hills pay during calendar year 20X8? Incremental Paid Claims Triangle Incremental Paid Claims as of (months) Accident Year 12 24 36 48 60 20X5 5,500 5,800 4,000 3,100 1,750 20X6 4,100 4,300 2,400 2,100 20X7 7,700 6,100 1,000 20X8 6,000 5,200 20X9 8,100 A. $2,100 B. $2,400 C. $4,300 D. $6,000

B. $2,400

Anne and Joe have a home with a $300,000 replacement cost and an HO-3 policy with a Coverage A limit of $150,000. Lightning strikes the central air conditioning unit and destroys it beyond repair. The unit has a replacement cost of $5,000, is five years old, and has a useful life of 10 years. Ignoring any deductible that might apply, how much will the insurer pay to replace the air conditioning unit? A. $2,500 B. $3,125 C. $4,125 D. $5,000

B. $3,125 Loss Payment =Limit of Loss/(80% * Replacement Cost) * Replacement Cost of Loss Loss Payment = $150,000/(80% * $300,000) * $5,000 Loss Payment = $150,000/$240,000 * $5,000 Loss Payment = 0.625 * $5,000 Loss Payment = $3,125

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? A. 5% B. 6% C. 18% D. 20%

B. 6% Return on equity = Net income / owner equity (1,000,000 / 16,500,000 = 0.06)

Steve and Julie purchased a HO-3 policy with a Coverage A limit of $200,000 and a Coverage C limit of $100,000. Steve and Julie added the Earthquake endorsement to their policy, which has the standard deductible. An earthquake occurs and causes significant damage to their dwelling and property. If Steve and Julie suffered a $75,000 loss as a result of the earthquake, how much coverage will their policy provide? A. $0 B. $65,000 C. $70,000 D. $74,500

B. $65,000 The policy will cover $65,000 worth of losses: $75,000 - $10,000 deductible (5% of Coverage A limit) = $65,000

At year end, Omicron Insurance Company (OIC) posted these results: Premiums written$10,000,000 Premiums earned 9,500,000 Underwriting expenses incurred 4,000,000 Loss and loss adjustment expenses incurred 5,700,000 Based on this information, which one of the following represents OIC's trade basis combined ratio? A. 97% B. 100% C. 102% D. 110%

B. 100% Losses/Earned Prem + UW Expense/Written Prem (5,700,000/9,500,000) + (4,000,000/10,000,000) = 100%

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? A. 5% B. 5.56% C. 18% D. 20%

B. 5.56% Argot's return on equity (GAAP basis) is 5.56 percent. The GAAP basis ROE = Net income / Average Owners' Equity, or $1,000,000 / $18,000,000 = 5.56%.

Which one of the following is an example of a noninsurance agreement that may overlap with insurance coverage of losses? A. A lease payment plan B. A responsible party agreement C. A business warranty agreement D. A home warranty

D. A home warranty

Mia is an actuary for Goshen Mutual. She needs to determine an overall rate level indication for Goshen's general liability policies to be effective January 1, 20X8. She is using the loss ratio method, and has collected the following data based on five accident years of experience. Total earned premium is $5,000,000. Projected earned premium at current rate level is $6,250,000. Projected ultimate losses and loss adjustment expenses (LAE) are $4,500,000. The fixed expense provision is 12%. The variable expense provision is 18%. The underwriting profit provision is 5.0%. What is the indicated rate change for Goshen Mutual's general liability policies to be effective January 1, 20X8? A. 1.2% B. 9.1% C. 20% D. 32.5%

B. 9.1% Indicated Change = [(Loss and LAE ratio + Fixed Expense Ratio)/ Variable Permissible Loss Ratio] - 1.0 The projected Loss and LAE ratio = $4,500,000/$6,250,000 = 72% The variable permissible loss ratio = 100% - 18% - 5% = 77% The indicated rate change = [(72 + 12)/77] -1 = 9.1%.

Anil has his automobile insured with ABC Insurance through his agent, Chad. Returning to his car in a shopping mall parking lot, Anil sees that vandals have spray painted graffiti on his vehicle. He calls Chad to report the damage and ask what he should do. Chad tells him to report the vandalism to the police, follow their instructions, and then take the vehicle home and wait for a call from a claim representative. Chad then reports the loss to ABC. Melissa is the claim representative assigned Anil's loss. Which one of the following will be the first step Melissa takes? A. Call Anil and take a statement regarding the details of the claim. B. Acknowledge receipt of the claim to Chad and enter the claim information into ABC's computer system. C. Verify that Anil's automobile policy covers vandalism damage. D. Verify that Anil reported the loss to the police.

B. Acknowledge receipt of the claim to Chad and enter the claim information into ABC's computer system.

Alex sold his insured auto to Harry, but Alex did not cancel his insurance on the auto. Harry was subsequently involved in an accident and asked Alex to make a claim under his policy for the damages to the auto, knowing that Alex had not yet canceled his policy. The insurance coverage will be denied because A. Alex did not property assign his policy to Harry. B. Alex no longer has an insurable interest in the auto. C. Harry has no insurable interest in the auto. D. Harry has no factual expectancy that coverage will apply.

B. Alex no longer has an insurable interest in the auto.

Doris owns jewelry appraised at $10,000. She would like insurance coverage that will protect her jewelry for its appraised value. Doris also would like broad coverage for her jewelry in case she accidentally loses a piece or a stone falls out of a ring. Assuming that she purchased an HO-3 policy, which one of the following will provide the coverage she wants? A. The unendorsed HO-3 B. An HO-3 with a Scheduled Personal Property endorsement scheduling all of the jewelry C. An HO-3 with a Supplemental Loss Assessment Coverage endorsement with a $10,000 limit D. An HO-3 with a Scheduled Personal Property endorsement scheduling $9,000 of the jewelry, on top of the $1,000 coverage limit provided by the HO-3

B. An HO-3 with a Scheduled Personal Property endorsement scheduling all of the jewelry

Regarding premium recognition, which one of the following treatments might be used for a continuous policy to account for written premium? A. A written premium definition based only on the first year of the continuous policy B. Annual premium payments viewed as a series of annual policies with only the current year premium treated as "written" C. A written premium definition based on representative years of the continuous policy and using those years as the base for recognition D. Pro rata written premium recognition as the premiums become earned

B. Annual premium payments viewed as a series of annual policies with only the current year premium treated as "written"

In property insurance, the determination of underinsurance (not insuring to value) is made A. When the risk is assessed by the underwriter. B. At the time of loss. C. At post loss by the underwriter. D. At the time of application.

B. At the time of loss.

In a loss development exhibit, which one of the following best describes what items must be developed? A. Allocated loss adjustment expenses (ALAE) B. Both losses and ALAE C. Losses D. Neither losses nor ALAE

B. Both losses and ALAE

In the HO-3 policy, the Coverage C limit for personal property usually located at the insured's resident premises is A. Reduced when the insured has one or more alternate residences. B. Calculated as a percentage of the HO-3 Coverage A—Dwelling limit. C. Stated as a dollar amount selected by the insured. D. Decreased when replacement cost coverage is chosen.

B. Calculated as a percentage of the HO-3 Coverage A—Dwelling limit.

Which one of the following cases illustrates how underwriting guidelines ensure uniformity and consistency? A. Furkan and Daniel have experience in underwriting workers compensation policies for Cromley Insurance Company. They have provided feedback and expertise in updating the current workers compensation guidelines in the underwriting manual. B. Chloe and Elin are underwriting identical homeowners risks for Cromley Insurance Company. The applicants have the same protection class, construction, and coverage amount. After checking the underwriting guidelines, they come to the same underwriting decision. C. Cromley's contractor's equipment underwriting guidelines might indicate that equipment use is of paramount importance in determining acceptability and pricing. D. Cromley identifies applicants that present a lower underwriting risk by assigning a rank or score of all the variables presented by an account and its loss exposures.

B. Chloe and Elin are underwriting identical homeowners risks for Cromley Insurance Company. The applicants have the same protection class, construction, and coverage amount. After checking the underwriting guidelines, they come to the same underwriting decision.

Which one of the following ratios is considered the accepted financial measure of an insurer's underwriting department? A. Retention ratio B. Combined ratio C. Success ratio D. Expense ratio

B. Combined ratio

Which one of the following items' property value would be most dramatically and suddenly affected by depreciation? A. Furniture B. Computer system C. Refrigerator D. Heating system

B. Computer system

Juan lives on a large property insured with an HO-3 policy. His home is heated by fuel oil that is stored in an underground tank in his backyard. Juan did not realize that there has been a small leak in the tank and that for several years fuel has slowly trickled out of it, making its way into a neighbor's well. The neighbor has made a claim against Juan, who turned the claim over to his insurer. Under Juan's HO-3 policy, this is A. Not considered an occurrence because it was not sudden. B. Considered an occurrence because it was a continuous condition and it was fortuitous. C. Not considered an occurrence because it did not cause bodily injury. D. Considered an occurrence because it destroyed tangible property.

B. Considered an occurrence because it was a continuous condition and it was fortuitous.

All sums paid under the medical expense limit of the Commercial General Liability (CGL) Coverage Form are subject to A. The products-completed operations aggregate limit. B. The each occurrence limit. C. A deductible. D. A 90 percent coinsurance requirement.

B. The each occurrence limit.

Sixteen-year-old Helen and her family were staying at a motel while on vacation. One night, Helen decided that she wanted to go out for snacks. She wished to borrow her parents' car, but her parents had gone to bed early. Helen was not sure whether her parents would mind her using their car, but she figured that the car was not being used anyway, so she should be able to use it. She found the keys and drove the car to a convenience store. Along the way, she caused an accident and a liability claim was made against her. Which one of the following is correct regarding coverage for this claim under her parents' Personal Auto Policy (PAP)? A. Coverage applies because no one explicitly told Helen that she could not use the car. B. Coverage applies because for insurance purposes, it is assumed that a family member has permission to use another family member's car. C. Coverage does not apply because Helen's sense of entitlement was not reasonable. D. Coverage does not apply because Helen intentionally borrowed the car.

B. Coverage applies because for insurance purposes, it is assumed that a family member has permission to use another family member's car.

Which one of the following cases illustrates how underwriting guidelines ensure that selection decisions provide uniformity and consistency by all the insurer's underwriters? A. Ella, an experienced staff underwriter provides insight for Cromley's Insurance on amusement parks by authoring a section on amusement parks in the underwriting guidelines. B. Cromley is training new underwriters and is using a work sample for a homeowner risk which has a unacceptable roof and an overgrown yard. New underwriters Erin and Filip check the guidelines and make the same underwriting decision to decline the risk. C. Cromley's underwriter, Ciara uses predictive modeling to analyze her risks. She is underwriting Chloe's homeowner application and it falls within the acceptable scores the company has created. D. Cromley's underwriting guidelines provide a section on insuring swimming pools, illustrating the principal considerations for such risks. New underwriter Pedro refers to this section of the guidelines.

B. Cromley is training new underwriters and is using a work sample for a homeowner risk which has a unacceptable roof and an overgrown yard. New underwriters Erin and Filip check the guidelines and make the same underwriting decision to decline the risk.

Ace Appliance is a retail store that sells large household appliances such as refrigerators, stoves, washers, dryers, and dishwashers. The company does no appliance repair work. The store is located in the end unit of a single-storey strip mall of modified fire-resistive construction. The strip mall was constructed five years ago and has fire breaks and parapets between each of the units. The mall is 2,000 feet from a fire hydrant and 7 miles from the responding fire station. It is rated Public Protection Class 3. Ace Appliance is a neat, well-maintained store and trash and waste are stored in metal containers away from the building at the back of the parking lot. The store's owner, "Ace" Atherley is a heavy smoker, as are several of his staff, but the store has a strict policy that allows smoking only outside the back door of the store. The unit next door to Ace Appliance is currently vacant. Which one of the following ratings would a property underwriter for a standard insurer most probably give this risk? A. Highly desirable B. Desirable C. Undesirable D. Highly undesirable

B. Desirable

Premium transition rules A. Should have as prolonged transition periods as possible to allow a slow ease into the changes. B. Dictate the maximum and/or minimum amount of change in premium that an insured may be subject to at a single renewal. C. Typically only apply to premium changes resulting directly from a change in risk characteristics. D. Are particularly useful when a company's proposed rate changes include no or few rating variable changes.

B. Dictate the maximum and/or minimum amount of change in premium that an insured may be subject to at a single renewal.

In the insuring agreement of Part D—Coverage for Damage to Your Auto of the Personal Auto Policy (PAP), the insurer promises to pay for A. All accidents not caused by an insured driver. B. Direct and accidental loss to a covered auto. C. All losses within the deductible amount. D. Any unintended accident caused by a declared driver.

B. Direct and accidental loss to a covered auto. The insurer promises to pay for any direct and accidental loss to "your covered auto" or a "non-owned auto" as defined in the PAP, minus the deductible shown on the Declarations page.

Deficiency in the loss reserves A. Requires an adjustment in the unearned premium reserve for all policies involved. B. Does not necessarily indicate a deficiency in the unearned premium reserve. C. Indicates a deficiency in the reserves for both the expired and unexpired portions of the policy. D. Indicates a deficiency in the reserves for the unexpired portion of the policy.

B. Does not necessarily indicate a deficiency in the unearned premium reserve.

When it comes to providing management with the desired level of assurance, with which one of the following does tolerable uncertainty conflict? A. Legality B. Economy of operations C. Social responsibility D. Survival

B. Economy of operations

An organization generally should not incur substantial costs in exchange for slight benefits under its risk management program. By comparing its costs of risk management with other similar organizations, an organization can measure its pre-loss goal of A. Social responsibility. B. Economy of operations. C. Legality. D. Tolerable uncertainty.

B. Economy of operations.

Risk management activities under the enterprise-wide risk management approach occur at the A. Business unit level. B. Enterprise level. C. Regional level. D. Departmental level.

B. Enterprise level.

Which one of the following statements is accurate regarding pure and speculative risks? A. Pure risks may sometimes be desirable. B. Every business venture involves speculative risks. C. A pure risk is a chance of loss or no loss, or a chance of gain. D. Financial investments typically involve pure risk.

B. Every business venture involves speculative risks.

Insurance regulators may try to restrict rate increases at the top of the underwriting cycle. Such actions often have the effect of A. Increasing competition. B. Exacerbating the underwriting cycle. C. Broadening policy terms. D. Decreasing deductibles.

B. Exacerbating the underwriting cycle.

Which one of the following is true regarding types of data used by actuaries? A. Salvage refers to an insurer's right to recover the amount of the claim payment to a covered insured from a third party responsible for the injury or damage. B. For insurers that do not cede claims to a reinsurer, there is no difference between claims net and gross of reinsurance, and in these situations separate analyses are not necessary. C. A good starting point for deciding on the large-claim threshold is for an actuary to use the claims department's value, as it usually has the same definition of "large claim" as the actuary. D. With general liability claim payments, the insurer usually collects the deductible from the insured before making the payment to the third-party claimant; this can affect case outstanding.

B. For insurers that do not cede claims to a reinsurer, there is no difference between claims net and gross of reinsurance, and in these situations separate analyses are not necessary.

Chloe owns a 120 year-old historical building that she uses as an art studio. Rebuilding the structure in the event of loss could become difficult due to the antique fixtures and materials used in the original design of the building. Which one of the following valuation methods is an insurer most likely to use in the property policy covering this property? A. Replacement cost B. Functional valuation C. Agreed value D. Actual cash value

B. Functional valuation

A young working couple is purchasing their first home. Facing budget pressures, they are content to accept named perils coverage on the dwelling in exchange for a lower premium. Assuming there are no mortgage restrictions, which one of the following ISO policy forms would be most appropriate for this couple? A. HO-4—Contents Broad Form B. HO-2—Broad Form C. HO-5—Comprehensive Form D. HO-6—Unit-Owners Form

B. HO-2—Broad Form HO-2 protects against threats specifically named on policy's declaration page HO-3 is an open-perils policy - Insurer will pay for damage to home UNLESS the damage is caused by an event explicitly listed as an exclusion on the policy HO-4 insurance, commonly referred to simply as renter's insurance, is an insurance policy that covers tenants from loss of personal property HO-5 is the BROADEST form of home-owners insurance available

Grayson runs a business from his home. His loss exposures include personal property used in the business and liability for his business activities. Grayson has an HO-3 policy for his home. Which one of the following endorsements will provide coverage for Grayson's business loss exposures? A. Supplemental Loss Assessment Coverage endorsement B. Home Business Insurance Coverage endorsement C. Personal Property Replacement Cost Loss Settlement endorsement D. Scheduled Personal Property endorsement

B. Home Business Insurance Coverage endorsement

Which one of the following best describes one of the steps in the business continuity process? A. Identify the organization's important resources B. Identify the risks to the organization's critical functions C. Develop an emergency response plan to deal with life and safety issues D. Arrange appropriate insurance coverage

B. Identify the risks to the organization's critical functions

When the investigation has been completed and all documentation has been received, the claim representative must decide whether to pay the claim or deny it. Which one of the following statements is correct with respect to this element of claim handling? A. State insurance regulations typically prohibit an insurer from advising an insured of the reason for a claim denial. B. If a disagreement arises over the value of a claim, alternative dispute resolution methods may be used to resolve the situation. C. To deny a claim, a claim representative need only verbally inform the insured that no payment will be made. D. Because of the variety of alternative dispute resolution methods available, very few claims are concluded through litigation.

B. If a disagreement arises over the value of a claim, alternative dispute resolution methods may be used to resolve the situation.

An insured may have more than one auto covered by a single Personal Auto Policy (PAP). Which one of the following statements regarding coverage under Part D of the PAP is true? A. Part D of the PAP provides coverage for damage to nonowned autos made available for the insured's regular use. B. If a nonowned auto is damaged by a covered cause of loss, Part D of the PAP provides the broadest coverage applicable to any covered auto shown in the declarations. C. If a nonowned auto is damaged by a covered cause of loss, Part D of the PAP provides coverage only if the owner of the auto has physical damage coverage. D. Part D of the PAP provides primary coverage for damage to a nonowned auto regardless of the existence of other physical damage coverage on the auto.

B. If a nonowned auto is damaged by a covered cause of loss, Part D of the PAP provides the broadest coverage applicable to any covered auto shown in the declarations.

An insurer has decided to offer a special extended Golf Cart Liability homeowners policy endorsement, an endorsement unique to this insurer, without charge as part of a marketing promotion to attract homeowners in retirement communities. According to the liberalization clause in the Sections I and II Conditions section of the homeowners policy, the additional coverage will automatically apply to all of the insurer's A. Homeowners policies as the policies are renewed. B. In force homeowners policies on the date it is implemented within the state. C. Former homeowners policyholders who had taken their insurance business to another insurer. D. Homeowners policyholders who had their policies canceled before the endorsement was implemented within the state.

B. In force homeowners policies on the date it is implemented within the state.

The cost of residual uncertainty can have a significant effect on an individual or organization. Which one of the following statements is correct with respect to residual uncertainty? A. For organizations, the cost of residual uncertainty is limited to the effect that uncertainty has on members of the organization. B. Individuals and organizations vary greatly as to how much residual uncertainty they are willing to accept, and this benefits society and the economy. C. The cost of residual uncertainty includes the cost of any insurance policies purchased to cover losses not treated by other risk management techniques. D. The cost of residual uncertainty can be calculated by subtracting the expected cost of losses or gains from an organization's cost of risk.

B. Individuals and organizations vary greatly as to how much residual uncertainty they are willing to accept, and this benefits society and the economy.

The cost of residual uncertainty can have a significant effect on an individual or organization. Which one of the following statements is correct with respect to residual uncertainty? A. For organizations, the cost of residual uncertainty is limited to the effect that uncertainty has on members of the organization. B. Individuals and organizations vary greatly as to how much residual uncertainty they are willing to accept, and this benefits society and the economy. C. The cost of residual uncertainty includes the cost of any insurance policies purchased to cover losses not treated by other risk management techniques. D. The cost of residual uncertainty can be calculated by subtracting the expected cost of losses or gains from an organization's cost of risk.

B. Individuals and organizations vary greatly as to how much residual uncertainty they are willing to accept, and this benefits society and the economy.

Under a deferral-matching approach, the written premium that results from the prospective addition of another driver to an automobile policy would A. Be retrospective to the policy inception date. B. Initially affect only unearned premium. C. Initially affect both earned and unearned premium. D. Be earned immediately.

B. Initially affect only unearned premium.

Riko is an automobile claim representative who has been assigned a claim submitted by John. John owns a Honda Civic, which is insured in his name for liability, collision, and comprehensive coverage on a Personal Auto Policy (PAP). He is the only named insured on the policy. John lives with his parents and his sister, Carla. One Saturday, while John is asleep, Carla borrows his car to run errands. Unfortunately she backs into the concrete base of a sign at the mall, damaging the vehicle. Riko confirms that the Honda is the covered vehicle, that it is insured against collision, and that the loss occurred during the policy period. Which one of the following will she most likely determine next? A. Is the mall parking lot a covered location? B. Is Carla covered as a driver of the damaged vehicle? C. Does any other insurance apply to this loss? D. Does the loss meet the policy definition of "collision"?

B. Is Carla covered as a driver of the damaged vehicle?

An insured purchases coverage for their vehicle a Personal Auto Policy (PAP) which includes uninsured motorist (UM) coverage. The insured is injured when a city-owned transit bus without liability insurance, a bond, or self-insurance causes a collision with the insured's vehicle. The insured A. Is entitled to UM coverage under the PAP under the share-the-expense car pool exception. B. Is not entitled to UM coverage because the definition of "uninsured motor vehicle" excludes any vehicle owned by a governmental unit or agency. C. Is entitled to UM coverage under the terms of the Insuring Agreement. D. Is not entitled to UM coverage because of the public or livery conveyance exclusion.

B. Is not entitled to UM coverage because the definition of "uninsured motor vehicle" excludes any vehicle owned by a governmental unit or agency.

Which one of the following statements is correct with respect to the ISO Earthquake and Volcanic Eruption Endorsement? A. It is not available for commercial buildings and can be attached only to residential insurance policies. B. It includes coverage for the full policy limit and contains a coinsurance clause. C. The maximum limit under the endorsement is $500,000 per building and $500,000 for the contents of a building. D. It is used to exclude coverage for earthquake and volcanic eruption under the commercial property coverage part.

B. It includes coverage for the full policy limit and contains a coinsurance clause.

Which one of the following is correct with respect to a business continuity plan? A. It details all of the risk control techniques that an organization has implemented in order to meet its risk management goals. B. It is designed to be used during a crisis, so it should be clear and able to be quickly read and understood. C. It should be developed after the occurrence of a significant loss and should outline how the organization will respond to similar future losses. D. It is typically a closely-guarded document, available only to an organization's senior management.

B. It is designed to be used during a crisis, so it should be clear and able to be quickly read and understood.

The products-completed operations hazard, as defined in the Commercial General Liability (CGL) Coverage Form, includes bodily injury and property damage under which one of the following circumstances? A. It occurs away from premises owned or rented by the named insured and does not arise out of the named insured's product or work. B. It occurs away from premises owned or rented by the named insured and arises out of the named insured's product or work. C. It occurs on premises owned or rented by the named insured and does not arise out of the named insured's product or work. D. It occurs on premises owned or rented by the named insured and arises out of the named insured's product or work.

B. It occurs away from premises owned or rented by the named insured and arises out of the named insured's product or work.

Which one of the following statements is correct with respect to the Causes of Loss—Special Form? A. It specifically excludes all loss or damage caused by or resulting from vehicles owned by the named insured or operated in the course of the named insured's business. B. It shifts the burden of proof as to whether a loss is covered from the insured to the insurer. C. It includes a much longer list of specified causes of loss than either the basic or the broad form. D. It covers theft by looting at the time of a riot or civil commotion, but it does not cover theft under any other circumstances.

B. It shifts the burden of proof as to whether a loss is covered from the insured to the insurer.

Joel is a delivery driver for XYZ Auto Supply. He usually drives the company van, but one day, since he only had to deliver a small part, Joel used his own car that is insured with a Personal Auto Policy (PAP). While doing so, Joel was involved in a two-vehicle accident and a liability claim was made against Joel and XYZ Auto Supply. Which one of the following is an insured(s) under Joel's PAP in this situation? A. Joel only B. Joel and XYZ Auto Supply C. None D. XYZ Auto Supply only

B. Joel and XYZ Auto Supply

Automatic sprinklers are a classic example of which one of the following risk control techniques? A. Avoidance B. Loss reduction C. Disaster planning D. Separation

B. Loss reduction

Three risk control techniques can be used effectively to control liability losses. Which one of the following is included among those three techniques? A. Separation B. Loss reduction C. Duplication D. Diversification

B. Loss reduction Risk control methods include avoidance, loss prevention, loss reduction, separation, duplication, and diversification.

Luke borrowed his neighbor's car with permission. While driving his neighbor's car, Luke caused an accident and a passenger in the other car was injured. Which one of the following auto coverages would be most likely to respond first? A. Luke's auto liability coverage B. Luke's neighbor's auto liability coverage C. The injured passenger's auto liability policy D. Luke's uninsured motorists coverage

B. Luke's neighbor's auto liability coverage

Competitors' rate filings A. And complete rate manuals are easily acquired. B. May involve a change to base rates only. C. Are only available to insurers. D. Can reliability be used by insurers.

B. May involve a change to base rates only.

Which one of the following statements is true regarding Coverage C—Medical Payments of the Commercial General Liability policy? A. Medical payments coverage is liability insurance because it pays only if the insured is legally liable. B. Medical payments coverage is a means of making prompt settlements. C. Medical payments coverage provides high limits of insurance for bodily injury losses. D. Medical payments coverage applies to bodily injury to any insured.

B. Medical payments coverage is a means of making prompt settlements.

Megan owns two cars, one that is insured with a Personal Auto Policy (PAP) and one that is not insured at all. While driving the uninsured car, she is injured in an accident with an at-fault uninsured driver. Megan makes a claim under her uninsured motorist (UM) coverage. Which one of the following statements is true? A. Megan is not entitled to UM coverage because of the Owned Vehicle With Primary UM Coverage in Other Policy exclusion. B. Megan is not entitled to UM coverage because of the Owned But Not Insured Vehicle exclusion. C. Megan is entitled to UM coverage in this situation pursuant to the UM Insuring Agreement. D. Megan is entitled to UM coverage pursuant to an exception to the Owned But Not Insured Vehicle exclusion.

B. Megan is not entitled to UM coverage because of the Owned But Not Insured Vehicle exclusion.

Megan owns two cars, a sedan and a coupe, each insured with a Personal Auto Policy (PAP) from a different insurer. She is injured while driving the sedan when it is involved in an accident with an at-fault uninsured driver. Both policies include uninsured motorists (UM) coverage, and Megan makes claims for UM coverage under both policies. Which one of the following statements is true? A. Megan should receive UM coverage from both policies. B. Megan should receive UM coverage from the sedan's policy but not the coupe's. C. Megan should receive UM coverage from the coupe's policy but not the sedan's. D. Megan is not entitled to UM coverage from either policy.

B. Megan should receive UM coverage from the sedan's policy but not the coupe's.

The Causes of Loss—Special Form states that it covers "risks of direct physical loss." The loss or damage A. May be accidental but must have been foreseen by the insured in order to be covered. B. Must be accidental and unforeseen by the insured in order to be covered. C. Only has to be accidental to be covered. D. Only has to be unforeseen by the insured in order to be covered.

B. Must be accidental and unforeseen by the insured in order to be covered.

Daniel is an insurance underwriter with over 20 years of experience. He has worked with reinsurers, surplus lines brokers, retention plans, and various captive arrangements. With which one of the following customer groups is Daniel most likely working? A. Small businesses B. National accounts C. Individuals D. Middle markets

B. National accounts

Which one of the following insurance consumer groups would have the most risk financing alternatives available to them? A. Small business B. National accounts C. Individuals D. Middle markets

B. National accounts

In the auto insurance policy definitions, an eligible private passenger auto, pickup, or van of which the named insured becomes the owner during the policy period is a A. Temporary substitute vehicle. B. Newly acquired auto. C. Replacement auto. D. Trailer.

B. Newly acquired auto.

Lucy, the owner of Lucy's Flower Shop, was delivering a vase of flowers to a customer, Mrs. White. When Mrs. White opened her front door, her dog ran outside, knocking the flowers from Lucy's hands, and causing the vase to shatter and injure Mrs. White. Although the customer insisted that she would be fine, Lucy received a medical bill for injuries to Mrs. White two years later. The medical treatment had been received one week before Lucy received the bill. Lucy explains the situation to her insurer and requests coverage under her Commercial General Liability Coverage Form (CGL). Will the medical expenses be covered under Coverage C—Medical Payments of the CGL? A. No, because the customer was obligated to tell Lucy that she would be filing a claim within five days of the accident. B. No, because the medical expenses must be incurred and reported to the insurer within one year after the date of the accident. C. No, because the coverage does not apply to accidents that occur away from the insured's premises and adjacent ways. D. No, because there is no liability against the insured.

B. No, because the medical expenses must be incurred and reported to the insurer within one year after the date of the accident.

Regarding property damage coverage under the Section II—Additional Coverages for Damage to Property of Others in the HO-3 policy, the insurer will A. Not pay for intentional property damage to a neighbor's home caused by a 12-year-old insured. B. Not pay for any damage to property owned by the insured. C. Pay for damage to property owned by a tenant of the insured. D. Pay for damage to property owned by a resident of the named insured's household.

B. Not pay for any damage to property owned by the insured.

Regarding the Other Insurance condition in Section II of the homeowners policy, the Coverage E limits applicable to any A. Loss are paid as excess over any other primary or umbrella coverages. B. Occurrence are paid as excess over any other collectible insurance except for other insurance written specifically to provide excess coverage. C. Occurrence are paid as primary and any other collectible insurance provides excess coverage. D. Loss are paid on a pro rata basis with other collectible insurance.

B. Occurrence are paid as excess over any other collectible insurance except for other insurance written specifically to provide excess coverage.

Which one of the following best describes the categories of risk included in the enterprise risk management model? A. Domestic, national, international B. Operational, strategic, financial, and hazard C. Primary, secondary, and tertiary D. Pure, dynamic, objective, and subjective

B. Operational, strategic, financial, and hazard

After a loss covered by a homeowners policy, an insured may find that repairs must be made under a newer, stricter building code. An endorsement that provides increased coverage for such a situation is the A. Supplemental Loss Assessment Coverage endorsement. B. Ordinance or Law—Increased Amount of Coverage endorsement. C. Change in Code endorsement. D. Loss Contingency endorsement.

B. Ordinance or Law—Increased Amount of Coverage endorsement. The Ordinance or Law—Increased Amount of Coverage endorsement increases coverage to cover repairs that must be made in order to comply with current ordinance or laws.

Which one of the following is true regarding maintaining insurer solvency? A. When one insurer becomes insolvent, they all become insolvent within a short time period. B. Other insurers may be required to contribute funds to help pay an insolvent insurer's obligations. C. Rates are developed based on the experience of all insurers, including those that become insolvent. D. All insurers rely on the same reinsurers to provide backing for the risks they cover.

B. Other insurers may be required to contribute funds to help pay an insolvent insurer's obligations.

Which one of the following statements is true with regard to excess of loss reinsurance? A. Per risk excess of loss always applies to both property and liability insurance. B. Per policy excess of loss applies primarily to liability insurance, and per risk excess of loss applies primarily to property insurance. C. Per policy excess of loss applies to both property and liability insurance. D. Per policy excess of loss applies primarily to property insurance, and per risk excess of loss applies primarily to liability insurance.

B. Per policy excess of loss applies primarily to liability insurance, and per risk excess of loss applies primarily to property insurance.

Business continuity is designed to meet both the primary risk management program post-loss goal of continuity of operation and the A. Pre-loss goal of social responsibility. B. Post-loss goal of survival. C. Post-loss goal of growth. D. Pre-loss goal of economy of operations.

B. Post-loss goal of survival.

An insurer's marketing department is working with the underwriting department to determine what characteristics of middle market businesses result in the most profitable commercial insurance accounts. Which one of the following methods would be most effective in identifying these characteristics? A. Situational analysis B. Predictive analytics C. Market monitoring D. Market segmentation

B. Predictive analytics

Significant deductibles are most common with which one of the following types of liability policies? A. Personal liability B. Professional liability C. Auto liability D. General liability

B. Professional liability

Changes in which one of the following basic insurance measures particularly highlight industry trends in overall loss costs from changes in both frequency and severity? A. Average premium B. Pure premium C. Underwriting expense ratio D. Loss ratio

B. Pure premium

Which one of the following is true regarding external data used by insurers? A. State regulators usually require detailed data from insurers when filing statistical plans. B. Ratemaking analysis is often supplemented with third-party data that is not specific to insurance. C. Credit data's uses are limited to personal lines insurers for analysis or determining rates. D. Population density data from the United States census is an example of useful economic data.

B. Ratemaking analysis is often supplemented with third-party data that is not specific to insurance.

Insurance policy regulation starts with legislative bodies. Which one of the following is one of the four areas of legislative policy regulation? A. Market conduct B. Readability standards C. Rebate enforcement D. Rate regulation

B. Readability standards

A primary insurer is able to obtain surplus relief through reinsurance by A. Obtaining underwriting advice from a reinsurer to increase underwriting profit. B. Receiving ceding commissions to offset policy acquisition expenses. C. Minimizing fluctuations in retained losses from year to year. D. Reducing large line capacity to minimize the ratio of net written premium to policyholders' surplus.

B. Receiving ceding commissions to offset policy acquisition expenses.

The term "reported claims" generally A. Refers to cumulative paid claims at a particular point in time. B. Refers to the sum of cumulative paid claims and case outstanding estimates at a particular point in time. C. Causes misunderstanding as to whether it contains incurred but not reported (IBNR). D. Cannot be used in place of incurred claims or incurred losses.

B. Refers to the sum of cumulative paid claims and case outstanding estimates at a particular point in time.

Which one of these offenses would not be considered a personal and advertising injury under Coverage B of the Commercial General Liability Coverage Form? A. An organization's unauthorized use of another's advertising idea in an advertisement B. Refusing to hire a qualified job applicant because of his ethnicity C. Malicious prosecution D. Wrongful eviction from a dwelling or premises that a person occupies

B. Refusing to hire a qualified job applicant because of his ethnicity

The Public or Livery Conveyance Exclusion Endorsement A. Replaces the public or livery conveyance exclusion in the personal auto policy. B. Reinforces the public or livery conveyance exclusion in the personal auto policy. C. Raises the premium for the public or livery conveyance exclusion in the personal auto policy. D. Removes the public or livery conveyance exclusion in the personal auto policy.

B. Reinforces the public or livery conveyance exclusion in the personal auto policy.

In many cases, a trade-off exists between relevance and A. Neutrality. B. Reliability. C. Transparency. D. Completeness.

B. Reliability.

With insurance-to-value provisions under homeowners (HO) and businessowners (BOP) policies, the amount payable by the insurer will never be less than the A. Repair cost of damaged property, subject to policy limits. B. Replacement cost of the damaged property, subject to policy limits. C. Policy limits less the deductible. D. Actual cash value (ACV) of the damaged property, subject to policy limits.

B. Replacement cost of the damaged property, subject to policy limits.

Which type of data aggregation, by design, results in no incurred but not reported (IBNR) claims, but a shortfall in case reserves, or incurred but not enough reported (IBNER), may exist? A. Policy year B. Report year C. Calendar year D. Accident year

B. Report year

A commercial automobile classified for retail use may be rated higher than a similar commercial automobile classified for service use because A. Vehicles classified as retail use are subject to the requirements of the Commercial Motor Vehicle Safety Act (CMVSA). B. Retail use involves delivery vehicles that may travel on unfamiliar routes and have tight schedules. C. Service vehicles are generally regarded as traveling in a smaller radius of operation. D. Service vehicles require the operator to hold a commercial driver's license (CDL).

B. Retail use involves delivery vehicles that may travel on unfamiliar routes and have tight schedules.

Examples of risk control loss reduction techniques that primarily apply to occupancy are A. Relocation away from hazards and removing combustible materials from the space that separates buildings. B. Safety training and emergency evacuation procedures. C. Fire detection and suppression. D. Construction design and internal fire protection.

B. Safety training and emergency evacuation procedures.

Which method of valuing property is typically used for jewelry or furs, when a sales receipt or appraisal is available for the property in question? A. Agreed amount B. Stated value C. Actual cash value D. Fair market value

B. Stated value

Company G is a manufacturer of high profile golf equipment. The risk management professional for Company G is concerned about loss of business related to product design. Failing to respond to changing customer demand and preferences in the design of golf clubs could cost Company G significant market share. Categorized according to the quadrants of risk, this exposure to loss would be classified as a(n) A. Hazard risk. B. Strategic risk. C. Operational risk. D. Financial risk.

B. Strategic risk

Hardware Store has been able to control its prices and inventory since it has no competitors. A new highway currently being constructed is going to allow increased competition for Hardware Store. According to the quadrants of risk, this risk of increased competition falls into the category of A. Operational risk. B. Strategic risk. C. Hazard risk. D. Financial risk.

B. Strategic risk.

Which one of the following statements is correct? A. A party who is injured or whose property is damaged by a negligent third party has a right to recover only if the wrongdoer has liability insurance. B. Subrogation provisions in policy wordings prevent insureds from collecting from both negligent third parties and their own insurer. C. If a negligent third party causes injury and the injured party accepts settlement from his or her own insurer, the negligent party's responsibility to pay damages is eliminated. D. Insureds who are injured by negligent third parties cannot recover from their own insurer under their own policy.

B. Subrogation provisions in policy wordings prevent insureds from collecting from both negligent third parties and their own insurer.

Which one of the following losses would be considered covered water damage under the commercial property policy Causes of Loss—Broad Form? A. Surface water B. Sudden and accidental discharge of water from the breaking apart of an insured's water pipe C. Flooding D. Continued or repeated leakage or seepage of water that occurs over 14 days or more

B. Sudden and accidental discharge of water from the breaking apart of an insured's water pipe

Which one of the following statements concerning the Scheduled Personal Property Endorsement is true? A. The Section I deductible applies to scheduled items. B. The Coverage C special limits do not apply to scheduled items. C. Cameras cannot be scheduled under the endorsement. D. The endorsement covers fewer causes of loss than does the HO-3 policy.

B. The Coverage C special limits do not apply to scheduled items.

Which one of the following is true regarding loss definitions? A. The valuation date cannot be the same as the end of the accounting period. B. The accounting period is often consistent with financial statement dates, such as month, quarter, or calendar year. C. The case reserve can only be determined by the claims adjuster using a formula. D. The sum of paid losses and case reserves is referred to as estimated ultimate losses.

B. The accounting period is often consistent with financial statement dates, such as month, quarter, or calendar year.

Which one of the following statements is true if the Replacement Cost optional coverage of the Building and Personal Property Coverage Form (BPP) is activated? A. The coinsurance percentage is amended from 80 percent to 100 percent of ACV. B. The amount of insurance required by the Coinsurance condition is calculated by multiplying replacement cost by the coinsurance percentage. C. The Coinsurance condition is suspended. D. Any tenants' improvements and betterments must be separately insured on an ACV basis.

B. The amount of insurance required by the Coinsurance condition is calculated by multiplying replacement cost by the coinsurance percentage.

The effect of premium billing on the balance sheet or income statement is dependent upon when the premium is received. If the billed premium is received before the effective date of the policy A. The unearned premium is equivalent to the amount of the full premium at the time of payment. B. The amount of the premium is treated as a deposit liability until the effective date. C. The written premium is equivalent to the amount of the full premium at the time of payment. D. An asset account, called "premiums receivable" is established until the effective date.

B. The amount of the premium is treated as a deposit liability until the effective date.

Joe has been suffering from chest pains for several weeks when he visits his cardiologist. The cardiologist explains to Joe that he is going to send him for a stress test to check his heart function. The cardiologist does not explain to Joe that the stress test could actually bring on a heart attack and does not ask Joe to sign a consent form. Joe goes for the stress test and suffers a mild heart attack as a result. Joe initiates a medical malpractice suit against his cardiologist. Which one of the following statements is correct with respect to this case? A. The cardiologist will be held to the standard of care of the leading expert in his field if the case goes to court. B. The cardiologist is likely to be found at fault if it is determined that he failed to exercise the standard of care accepted in his field. C. The cardiologist cannot be found liable for failing to explain the risk of heart attack from the stress test, because the heart attack was an unavoidable risk. D. The cardiologist cannot be found liable for failing to obtain Joe's informed consent for the test.

B. The cardiologist is likely to be found at fault if it is determined that he failed to exercise the standard of care accepted in his field.

An insurer's public image is determined largely by A. Defense attorneys. B. The claim department's behavior. C. State regulators. D. The actuarial department.

B. The claim department's behavior.

Which one of the following statements is correct regarding the claim function of an insurer? A. By overcompensating the insured or claimant, the insurer keeps customers happy and can lower the cost of insurance. B. The claim function helps insurers achieve underwriting profit through control of expenses. C. An insurer's reputation for providing the service promised does not affect its ability to meet financial goals. D. The two primary goals of the claim function conflict with one another, hindering an insurer's ability to earn a profit.

B. The claim function helps insurers achieve underwriting profit through control of expenses.

Many laws and regulations require organizations to implement specific risk control measures. Which one of the following statements is true in this regard? A. These measures are a means of implementing the risk control techniques of separation, duplication, and diversification. B. The cost of adhering to these legal requirements becomes part of the cost of risk. C. These laws and regulations are amended infrequently and do not require ongoing monitoring. D. Failure to comply with legal requirements can expose an organization to sanction, but not to liability.

B. The cost of adhering to these legal requirements becomes part of the cost of risk.

Which one of the following statements is correct with respect to premises medical payments coverage? A. It requires that the policyholder be legally liable for the injured party's injury. B. The coverage can be excluded by endorsement, but this is rarely done. C. It pays medical expenses for insureds injured by the policyholder's premises or operations. D. The limits for medical payments coverage are typically $25,000 to $50,000.

B. The coverage can be excluded by endorsement, but this is rarely done. C is wrong because medical expense coverage covers medical payments to OTHERS, not the insured

Which one of the following statements is true regarding risk management program goals? A. The goal of economy of operations is that the organization should incur only moderate costs in exchange for significant benefits. B. The goal of tolerable uncertainty is to allow managers to make and implement decisions without being unduly affected by uncertainty. C. The goal of earnings stability is that the organization should strive for the highest possible level of profit in the post-loss period. D. An organization with a post-loss goal requiring a minimum level of profit tends to spend less on risk financing than an organization that does not require minimum profit.

B. The goal of tolerable uncertainty is to allow managers to make and implement decisions without being unduly affected by uncertainty.

To reduce the moral hazard associated with property insurance policies written on a replacement cost basis, most replacement cost policies pay only after A. The insured has met the deductible. B. The insured has actually replaced the damaged or destroyed property. C. The insured has waited 30 days. D. It has been determined that the loss is a relatively high value.

B. The insured has actually replaced the damaged or destroyed property.

The named insured under a Commercial General Liability (CGL) Coverage Form dies, and Sarah becomes a temporary custodian of the named insured's property. The coverage for Sarah under the deceased named insured's CGL form applies only to liability arising out of A. Losses that occurred within 60 days after the death of the named insured. B. The maintenance or use of the named insured's property. C. Contractual obligations. D. The named insured's premises.

B. The maintenance or use of the named insured's property.

The named insured under a Commercial General Liability (CGL) Coverage Form dies, and Sarah becomes a temporary custodian of the named insured's property. The coverage for Sarah under the deceased named insured's CGL form applies only to liability arising out of A. Losses that occurred within 60 days after the death of the named insured. B. The maintenance or use of the named insured's property. C. The named insured's premises. D. Contractual obligations.

B. The maintenance or use of the named insured's property.

During the past year, International Toys has undertaken four capital projects. The company has renovated and refurbished one of its aging warehouse buildings. It has purchased the most recent version of its current order processing computer software. It has added two trucks to its fleet of delivery vehicles. Lastly, it has purchased a new production machine that will allow it to launch a new product line. Which one of the following company projects is the most speculative risk? A. The software upgrade B. The new production machine C. The two new trucks D. The warehouse refurbishment

B. The new production machine

Which one of the following statements is correct with regard to reinsurance agreements and their functions? A. The retention under a reinsurance agreement is always expressed as a percentage of the original amount of insurance. B. The reinsurance agreement identifies the policy, group of policies, or other categories of insurance that are included in the agreement. C. Reinsurers are prohibited from transferring part of the liability they have accepted under reinsurance agreements to other reinsurers. D. The reinsurance agreement alters the terms of the underlying insurance policies.

B. The reinsurance agreement identifies the policy, group of policies, or other categories of insurance that are included in the agreement.

George has received an inheritance and is deciding what to do with the money. He has limited his options to four choices: donate all the money to his favorite charity, use the entire inheritance to buy a yacht, invest the inheritance in a small rental property, or use the entire amount to purchase T-bills. Which one of the following statements is true regarding the risk involved in George's options? A. Purchasing T-bills is a pure risk because the interest rate payable is known, and the chance of loss is minimal. B. The rental property presents both pure and speculative risk; property values may increase, and the building could burn down. C. Donating his inheritance to charity is a pure risk; there is no uncertainty that the money will be gone and George will have no chance of profit. D. Buying a boat is a nondiversifiable risk because George can only afford to purchase a single yacht.

B. The rental property presents both pure and speculative risk; property values may increase, and the building could burn down.

Which one of the following statements is true regarding risk management techniques? A. Data based on objective risk factors are usually the only criteria considered in determining appropriate risk management techniques. B. The risk management techniques selected by for-profit organizations should be both effective in meeting the organizations' goals and economical. C. In support of the goal of economy of operations, the risk management techniques selected by most for-profit organizations should be the least expensive ones. D. Nonfinancial considerations are usually disregarded in selecting risk management techniques because they cannot be factored into a cost/benefit analysis.

B. The risk management techniques selected by for-profit organizations should be both effective in meeting the organizations' goals and economical.

Solvency regulation protects policyholders and the general public against A. The risk of making ill-informed insurance and other business decisions. B. The risk that an insurer will be unable to meet its financial obligations. C. Rates that are excessive and unfairly discriminatory. D. Unethical market behavior of producers and claim personnel.

B. The risk that an insurer will be unable to meet its financial obligations.

The focus of risk quadrants is different from the focus of risk classifications. While the classifications of risk focus on some aspect of the risk itself, the four quadrants of risk focus on A. Pure and speculative risks. B. The source of risk and who has traditionally managed it. C. The determination of whether the risk is diversifiable. D. Subjective and objective risks.

B. The source of risk and who has traditionally managed it.

Which one of the following is the most important reason for the transferor in a risk transfer agreement to assess the financial strength of the transferee? A. There are often disputes about whether a loss falls within the transfer agreement's scope. B. The ultimate responsibility for paying for loss remains with the transferor in a risk transfer agreement. C. Most risk transfer measures involve some type of limitation on the potential loss amount being transferred. D. Risk transfer measures are usually a combination of retention and transfer.

B. The ultimate responsibility for paying for loss remains with the transferor in a risk transfer agreement.

Which one of the following statements is correct with regard to the Causes of Loss—Broad Form? A. The falling objects cause of loss provides coverage for falling objects that damage personal property in the open. B. The weight of snow, ice, or sleet cause of loss does not cover damage to personal property in the open. C. The water damage cause of loss includes coverage for damage due to discharge or leakage from roof drains, gutters, downspouts, or similar fixtures or equipment D. The form specifically excludes the cost of tearing out and replacing any part of an insured building to repair damage to any appliance or system that leaked water or steam.

B. The weight of snow, ice, or sleet cause of loss does not cover damage to personal property in the open.

Which one of following statements represents an advantage of principle-based accounting standards versus rule-based standards? A. They are considered easier to audit for compliance purposes. B. They are potentially very flexible with regard to new and changing products and environments. C. They may produce more consistent and comparable financial reports across entities. D. They can be used to more easily alter financial results for a situation.

B. They are potentially very flexible with regard to new and changing products and environments.

Deductibles in property insurance policies are most effective in reducing insurers' expenses when A. They are used with large property exposures. B. They are used with coverages in which small, partial losses are common. C. Their use provides no incentive for the insured to prevent losses. D. Their size does not have a noticeable financial effect on the insured.

B. They are used with coverages in which small, partial losses are common.

One approach to categorizing risks involves dividing risks into risk quadrants. The risks categorized as hazard risks are A. Speculative risks that fall outside the operational risk category. B. Traditionally managed by risk management professionals. C. Traditionally handled by the chief financial officer. D. Fundamental to an organization's existence and business plans.

B. Traditionally managed by risk management professionals.

Art Décor is an interior decorating business located in a renovated two-story brick century home. The roof is asphalt shingles and the exterior walls have been insulated with fiberglass insulation. The ground floor of the building is a display area for fabric and wall covering samples, and flooring and carpeting samples. The second floor contains offices and client consulting rooms. The building is heated by a standard oil furnace. It is well-maintained and is located on the outskirts of town 1,500 feet from a fire hydrant and 8 miles from the responding fire hall, which ISO rates as Public Protection Class 7. The building is equipped with smoke detectors and has an automatic sprinkler system. Immediately north of the building is a lumber yard located in relatively new, one-story frame building. To the south is open farm land. Which one of the following ratings would a property underwriter for a standard insurer most probably give this risk? A. Highly undesirable B. Undesirable C. Desirable D. Highly desirable

B. Undesirable

An insurer uses internal data A. Even though the International Actuarial Association finds it risky. B. When it is a large insurer with its own management information systems. C. Exclusively when it is a small insurer with many systems limitations. D. When entering a new line of insurance to develop estimates of unpaid claims.

B. When it is a large insurer with its own management information systems.

Insurer B (IB) notifies one of its independent agents that its agency contract will be terminated unless the agency improves its hit (or success) ratio during the next 90 days. This indicates that IB has A. Less restrictive underwriting selection criteria than other insurers the agency represents. B. Written too few of the accounts it quoted for the agency. C. A higher-than-expected loss ratio with the agency. D. Renewed too few of the accounts the agency wrote with IB in the past year.

B. Written too few of the accounts it quoted for the agency.

Luis Munoz's corporation is insured under a Commercial General Liability (CGL) Coverage Form. On March 1, Luis acquired an additional organization but did not notify his insurer. On April 15, the acquired organization suffered a liability loss. Will Luis' CGL cover the liability loss of the newly acquired organization? A. Yes, because newly acquired organizations, including partnerships and limited liability corporations, are automatically covered under the CGL as long as the insured notifies the insurer of the additional exposure within 120 days. B. Yes, because the newly acquired organization qualifies as a named insured and is covered for 90 days after its acquisition. C. No, because Luis did not notify his insurer of the acquisition. D. No, because Luis did not add the newly acquired organization as a named insured within 30 days of its acquisition.

B. Yes, because the newly acquired organization qualifies as a named insured and is covered for 90 days after its acquisition. There is coverage because newly acquired entities are covered for 90 days without notice to the insurer.

Assume a covered settlement amount of $1,300,000 under a liability insurance policy including a limit of $1,000,000, and a self-insured retention (SIR) of $100,000. Under normal circumstances, the insurer will pay which one of the following amounts for this settlement? A. $300,000 B. $900,000 C. $1,000,000 D. $1,100,000

C. $1,000,000

The exhibit below is a Cumulative Paid Claims Triangle for Goshen Mutual. What are Accident Year (AY) 20X3 paid claims as of the December 31, 20X5 valuation? Cumulative Paid Claims as of (months) Accident Year 12 24 36 48 20X3 800 1,400 1,550 1,800 20X4 650 1,300 1,650 20X5 480 1,100 20X6 900 A. $800 B. $1,400 C. $1,550 D. $1,800

C. $1,550

Peter has a Commercial Package Policy (CPP) that has a Building and Personal Property Coverage Form (BPP) with a Causes of Loss - Broad Form covering his building with a $750,000 limit. A tropical storm struck the area near Peter's building and the strong winds tore most of the shingles from the building's roof and shattered multiple windows with flying debris. An outside fixture also sustained heavy damage due to the wind. The total amount of damages was $40,000 for the windows and shingles; and $10,000 for the outside fixture. How much will Peter's insurer pay for damage to his outside fixture? A. The loss is not covered. B. $5,000 C. $10,000 D. $20,000

C. $10,000

Delmond Manufacturing is opening a new manufacturing facility in a building that it purchased from a competitor. Using the information below, which one of the following represents the cost of risk of opening the new facility? New building cost $60.0 million Safety system upgrades $6.0 million Insurance premiums $1.5 million Retained losses $3.0 million Risk management department budget at the site $1.0 million A. $7.0 million B. $10.0 million C. $11.5 million D. $71.5 million

C. $11.5 million

Ella Fitzpatrick is retired and living in an adult retirement community. She has a 15-year-old sedan that she keeps for family outings when her children and grandchildren visit. Because she rarely uses the vehicle, and she tries to reduce expenses, Ella has a personal automobile policy with the following low coverage limits which satisfy the minimum requirements of her state: Part A—Liability Coverage $20,000/$40,000/$10,000 limits Part B—Medical Payments Coverage $1,000 per person Part C—Uninsured Motorists Coverage $20,000 combined single limit While on a family outing to a local beach in her state, Ella allowed her grandson, George, to drive her car. George was at fault when he failed to yield to a compact car at an intersection and collided. He injured the driver and passenger of the compact car, causing $15,000 in bodily injuries. The compact car, which has a value of $10,000 was totaled. Ella and George were injured. Ella had medical bills totaling $3,000. George had medical bills totaling $8,000. What dollar amount, if anything, will Ella's insurer pay for Part B as a result of the accident? A. Nothing B. $1,000 C. $2,000 D. $3,000

C. $2,000

Which one of the following is covered under the Building and Personal Property Coverage Form (BPP) as business personal property? A. Permanently installed machinery and equipment B. Completed additions to a building C. Building contents such as furniture D. Fixtures, including outdoor fixtures

C. Building contents such as furniture

A wholesaler insures its business personal property under a Value Reporting Form with a $5,000 deductible. The insured reports its values to the insurer monthly and the reports are always accurate and on time. The most recent report showed that the insured's value of business personal property was $1,900,000. Two weeks later, the insured suffers a total fire loss with damage at $2,010,000. Which one of the following amounts will the insurer pay? (Assume the policy limit is adequate to cover any loss payable.) A. $1,895,000 B. $2,000,000 C. $2,005,000 D. $2,010,000

C. $2,005,000

Martin is an actuary involved in the ratemaking process for workers compensation. He needs to adjust the historical premium in order to estimate the premium for the future policy period. Due to the length of time needed to complete the payroll audits for the policy year, Martin must determine premium development factors to adjust for premium audits when determining the ultimate premium. Martin has the following information: The insurer writes two workers compensation policies per month in 20X5. The estimated premium for each policy is booked at policy inception for $100,000. Premium on every policy develops by 5% at the first audit, six months after the policy expires. As of December 31, 20X6, the 12 policies written in the first half of 20X5 have completed their audits, but the policies written in the second half of the year have not. What is the policy year 20X5 premium as of December 31, 20X6? A. $1,260,000 B. $2,400,000 C. $2,460,000 D. $2,520,000

C. $2,460,000 (($100,000 * 0.05) * 12 policies) + ($100,000 * 24 policies) = $2,460,000

An amusement park ride malfunctioned, injuring four individuals. ABC Insurer, the general liability insurer for the both the amusement park and the ride manufacturer, paid each of the four individuals $500,000 under the amusement park's policy and paid each of the four individuals $250,000 under the ride manufacturer's policy. ABC has a $5 million xs $200,000 per occurrence excess of loss treaty with XYZ Reinsurer. How much would XYZ pay for these losses? A. $1,400,000 B. $1,500,000 C. $2,800,000 D. $3,000,000

C. $2,800,000 (500,000 × 4) + (250,000 × 4) − 200,000 = 2,800,000; XYZ will pay $2,800,000 for these losses.

The losses listed below arose from three policies and one occurrence: Policy Loss Amount 1 $300,000 2 $600,000 3 $800,000 Given the above losses, what is the difference between the amount of loss a primary insurer would recover under a $750,000 xs $250,000 per policy excess of loss reinsurance treaty versus a $1,000,000 xs $1,000,000 per occurrence excess of loss reinsurance treaty? A. $0 B. $50,000 C. $250,000 D. $700,000

C. $250,000 Policy A - $750,000 xs $250,000 PER POLICY 1. $250,000 + $50,000 2. $250,000 + $350,000 3. $250,000 + $550,000 Policy B - $1,000,000 xs $1,000,000 PER OCCURRENCE Total for Occurrence = $1,700,000 $1,000,000 + $700,000 Policy A TOTAL $250,000 * 3 = $750,000 Policy B TOTAL $1,000,000 $1,000,000 - $750,000 = $250,000

Brook Insurance has a 5-line surplus share treaty with Cedars Reinsurance. The line is $100,000. Brook Insurance has the following policies: Limit Premium Loss Policy A $50,000 $1,000 $1,000 Policy B $400,000 $4,000 $50,000 Policy C $800,000 $16,000 $100,000 How much of the premium for Policy B will Brook Insurance cede to Cedars Reinsurance? A. $800 B. $1,000 C. $3,000 D. $3,200

C. $3,000 100,000 is retained and 300,000 is ceded; 300,000 ÷ 400,000 limit = .75; 4,000 × .75 = 3,000. Brook Insurance will cede $3,000 of the premium for Policy B to Cedars Reinsurance.

If an insurer has a 20 percent quota share ceded reinsurance contract for all direct insurance and the insurer's direct loss reserve at year-end is $500,000, what is the net loss reserve on the insurer's balance sheet? A. $100,000 B. $200,000 C. $400,000 D. $500,000

C. $400,000 20% * $500,000 = $100,000 for REINSURER $500,000 - $100,000 = $400,000 for INSURER

Rosa's sedan is covered by a Personal Auto Policy (PAP) with split limits for liability coverage of $100/$300/$50. Rosa's friend, Lamont, owns a sports car that is covered by a PAP with split limits for liability coverage of $25/$50/$10. Rosa borrowed Lamont's sports car and caused an accident with another vehicle driven by James. James and his passenger, Fred, were injured and they filed suit against Rosa. A court awarded $35,000 to James for his bodily injuries and $110,000 to Fred for his bodily injuries. Which one of the following will be paid under each policy? A. $29,000 under Lamont's policy and $116,000 under Rosa's policy B. $35,000 under Lamont's policy and $110,00 under Rosa's policy C. $50,000 under Lamont's policy and $95,000 under Rosa's policy D. $95,000 under Lamont's policy and $50,000 under Rosa's policy

C. $50,000 under Lamont's policy and $95,000 under Rosa's policy Lamont's car was the car involved in the accident, so Lamont's policy would cover up to the occurrence limit ($50,000) and then Rosa's policy would kick in to cover the remaining balance (up to the policy's limit).

Li has a Personal Auto Policy (PAP) for his car with a $100,000 limit for uninsured motorists (UM) coverage. He was injured in an accident with a legally intoxicated uninsured motorist. Li submitted a UM claim to his insurer. The case went to trial and Li was awarded $50,000 for medical bills, $10,000 for rehabilitation expenses, $5,000 for lost wages, and $10,000 for punitive damages. How much can Li collect under the UM coverage of his PAP? A. $50,000 B. $55,000 C. $65,000 D. $75,000

C. $65,000 UM Coverage applies ONLY to compensatory damages, which DO NOT include punitive damages.

Dudley and Tricia Barton have an unendorsed Personal Auto Policy (PAP) covering Tricia's sedan and Dudley's SUV with the following coverages and limits: Liability $100,000/$300,000/$50,000 Medical Payments $5,000 Uninsured Motorists $100,000/$300,000 Other Than Collision Actual Cash Value Less $250 Collision Actual Cash Value Less $500 Rushing to get home after working late one night, Tricia ran a red light, striking a van and injuring its driver, Wilma. The damages and costs resulting from the accident and subsequent lawsuit are as follows: Damages to Tricia's sedan $5,000 Damages to Wilma's van $12,000 Wilma's medical injuries $57,000 Tricia's medical injuries $2,000 Defense costs $10,000 Tricia is found to be liable for the accident. Dudley and Tricia live in a state without a no-fault insurance law. How much will Tricia's insurer pay under Part A—Liability Coverage? A. $57,000 B. $67,000 C. $79,000 D. $81,000

C. $79,000 Liability covers person, occurrence, and property, so: Damages to Wilma's van $12,000 Wilma's medical injuries $57,000 Defense costs $10,000

Dan owns a bike repair shop which is located on the first floor of a 3 story building owned by Jane. Jane uses the third floor for her own business and rents out the second floor to a graphic design studio. While doing some bike repair work, Dan accidentally started a fire which spread throughout the entire building. The damage from the fire consisted of: i) damage to Dan's business personal property - $125,000; ii) damage to the bike repair shop building rented to Dan - $250,000; iii) damage to the remainder of the building - $300,000; iv) damage to Jane's business personal property - $80,000 and v) bodily injury to a customer of the graphic design studio on the 2nd floor - $300,000. Jane has coverage under her own business insurance policy which would pay 80 percent of damages to her business personal property with a $1,000 deductible. Dan's bike repair shop is insured by a Commercial General Liability policy (occurrence version) with no deductible and no endorsements. Dan's insurer has determined that Dan is legally liable for all the damages. The policy's each occurrence limit is $1,000,000; the Damage to Premises Rented to You limit is $100,000 and the policy general aggregate is $2,000,000. Under Dan's Commercial General Liability policy, how much will the insurer pay for damage to Jane's business personal property? A. $63,000 B. $64,000 C. $80,000 D. $100,000

C. $80,000

Part of the ratemaking process involves adjusting the historical premium for any rate changes that have taken place during or after the historical experience period. The table below shows the auto liability rate change history for Millstone Insurance. Rate Level Group Effective Date Rate Change A 07/01/20X1 4.0% B 07/01/20X2 10.0% C 04/01/20X3 -5.0% D 07/01/20X4 2.0% E 07/01/20X5 2.0% Based on the above, what is the current rate level index for Millstone's auto liability? A. 1.020 B. 1.026 C. 1.131 D. 1.230

C. 1.131 0.04+0.10+(-0.05)+0.02+0.02 = 13 1+13 = 1.13

The table below shows the effective date, expiration date, and exposures for five policies written by Westfork Mutual. What is Westfork Mutual's total written exposure for calendar year (CY) 20X3? Policy Effective Date Expiration Date Exposure A 07/01/X2 06/30/X3 4 B 01/01/X3 12/31/X3 4 C 04/01/X3 03/31/X4 4 D 07/01/X3 06/30/X4 4 E 01/01/X4 12/31/X4 4 A. 9 B. 11 C. 12 D. 16

C. 12 A is written in X2, not X3, so A = 0 B, C, and D were all written in X3, so 4+4+4 3 x 4 = 12

John has a Personal Auto Policy (PAP) with both collision and other than collision coverages. While John was working out at the gym, his car was stolen from the parking lot. The police recovered John's car five days later, but it had been damaged. John's car was in the shop 10 days for repairs. For what number of days will John's insurer pay him for transportation expenses? A. 5 B. 10 C. 13 D. 15

C. 13

After a rate change, an underwriter has determined that the renewal premium for an insured represents a 30% premium increase. The underwriter consults with a supervisor, and they decide to pursue a premium transition rule and limit the amount of the increase to 20% for this renewal. What is the remaining increase that will be implemented at the insured's second renewal? A. 4.3% B. 6.6% C. 8.3% D. 10%

C. 8.3% Your current rate level is x, and your goal is a 30% increase (1.3x) but you only took 20% increase (1.2x) at first. So, you need to take a 1.3/1.2 increase to get the rest 1.3/1.2 = 1.083 1.083 - 1.000 = 8.3%

Which one of the following statements is correct regarding coverage under Section I, Coverage D—Loss of Use of an HO-3 policy. A. Coverage is limited to 30 days or the time required to repair or replace the residence premises, whichever is shorter. B. Coverage is provided only when civil authority prohibits use of the premises. C. A claim may be filed when the residence premises are unlivable because of a covered cause of loss and there has been an increase in living expenses. D. Additional Living Expenses and Fair Rental Value have separate coverage limits.

C. A claim may be filed when the residence premises are unlivable because of a covered cause of loss and there has been an increase in living expenses.

A reinstatement premium under reinsurance treaties is charged when A. An audit indicates that higher premium is due. B. Endorsements are added mid-term. C. A covered event exhausts treaty limits. D. Final subject premium is known.

C. A covered event exhausts treaty limits.

Which one of the following planned retention funding measures recognizes in advance the potential for loss and supports that potential by allocating cash, securities, or other liquid assets to meet obligations? A. Current expensing of losses B. An unfunded reserve C. A funded reserve D. Borrowed funds

C. A funded reserve

An example of an uninsured motor vehicle under the Personal Auto Policy (PAP) is A. A vehicle that is self-insured under state law. B. An uninsured auto owned by the named insured's spouse. C. A hit-and-run vehicle with an unidentified owner that hits the named insured's covered auto. D. An old bus placed on blocks and used as a home.

C. A hit-and-run vehicle with an unidentified owner that hits the named insured's covered auto.

On an insurer's balance sheet, the unearned premium reserve is listed as A. An entry in notes and disclosures. B. An asset. C. A liability. D. An insurance expense.

C. A liability.

Classifying risk appropriately can help in managing risk. Which one of the following statements is correct with respect to the classifications of risk? A. Risk classifications are mutually exclusive, and only one can be applied to any given risk. B. Insurance deals primarily with speculative risk, rather than with pure risk. C. A pure risk is a chance of loss or no loss, but no chance of gain. D. Usually, pure risks and speculative risks can be managed using the same techniques.

C. A pure risk is a chance of loss or no loss, but no chance of gain.

Under the Commercial General Liability (CGL) Coverage Form, medical payments coverage applies to which one of the following? A. A person injured while taking part in athletic contests. B. A person injured on that part of the named insured's premises that the person normally occupies. C. A volunteer worker of the named insured. D. Anyone hired to do work for an insured or for a tenant of an insured.

C. A volunteer worker of the named insured.

Gina has a Personal Auto Policy (PAP) with a medical payments limit of $10,000 with ABC Insurance Company and also has a PAP with a medical payments limit of $5,000 with DEF Insurance Company. Both policies cover Gina's car. If Gina is injured while driving her car and has medical bills of $8,000, how much will each insurer pay? A. ABC will pay $2,667and DEF will pay $5,333. B. ABC will pay $3,000 and DEF will pay $4,000. C. ABC will pay $5,333 and DEF will pay $2,667. D. ABC will pay $8,000 and DEF will pay nothing.

C. ABC will pay $5,333 and DEF will pay $2,667. ABC will pay $5,333 ($8,000 x $10,000/$15,000). DEF will pay $2,667 ($8,000 x $5,000/$15,000).

An occurrence as defined in the HO-3 policy is A. A claim. B. A loss. C. An accident. D. An event.

C. An accident.

Which one of the following statements concerning the calculation of fixed expense fees and other additive premium is true? A. A company expects target profit on premium except that which comes from fixed expense fees. B. Generally, no adjustment to the expense fee is needed to account for variable expense and profit. C. An adjustment to the expense fee includes dividing the average fixed underwriting expense by the variable permissive loss ratio. D. The rating algorithm always incorporates fixed expenses through an additive-per-exposure expense fee.

C. An adjustment to the expense fee includes dividing the average fixed underwriting expense by the variable permissive loss ratio.

Reinsurance is best described as A. A transfer of claim-payment responsibilities from a primary insurer to a reinsurer. B. An agreement between a primary insurer and a ceding company. C. An agreement by a reinsurer to indemnify a primary insurer for losses. D. A transfer of a primary insurer's retention to a reinsurer.

C. An agreement by a reinsurer to indemnify a primary insurer for losses

When measuring loss trend, actuaries generally A. Use calendar year losses for analyzing a long-tail line of business. B. Use accident year losses for analyzing a short-tail line of business. C. Analyze frequency and severity separately. D. Fit exponential curves to current rate level data.

C. Analyze frequency and severity separately.

Although actuarial approaches may vary, the term "insurer" broadly represents A. Any risk bearer for any type of exposures. B. An organization with a funded self-insured program. C. Any risk bearer for property-casualty exposures. D. An insurance company.

C. Any risk bearer for property-casualty exposures.

An uninsured motor vehicle under the Personal Auto Policy (PAP) can mean a land motor vehicle or trailer of any type that meets which one of the following criteria? A. A bodily injury liability policy applies to it at the time of an accident with an insurance company that is solvent. B. Bodily injury insurance or bond applies to the vehicle at the time of an accident. C. Bodily injury liability limit is less than the financial responsibility law. D. It is a hit-and-run vehicle whose operator can be identified and it hits the named insured's covered auto.

C. Bodily injury liability limit is less than the financial responsibility law.

Carol has worked as a payroll clerk for a small organization for 20 years. Over the years she received only two small salary increases and began to embezzle funds from the company since she felt she was not adequately compensated for her job efforts. In terms of the quadrants of risk, Carol's theft risk can be classified as A. Both a hazard risk and a financial risk. B. A financial risk. C. Both a hazard risk and an operational risk. D. A strategic risk.

C. Both a hazard risk and an operational risk.

Insurers should not be allowed to earn excessive or unreasonable profits because excessive rates A. Are unfairly discriminatory. B. Are not neutral. C. Can lead to affordability problems. D. Are not adequate.

C. Can lead to affordability problems.

The Personal Auto Policy (PAP) provides physical damage coverage for a covered auto that is damaged when the car's driver loses control and overturns the car on a sharp curve. This coverage is called A. Comprehensive coverage. B. Other than collision coverage. C. Collision coverage. D. Falling object coverage.

C. Collision coverage.

Which one of the following statements is correct with respect to property loss exposures? A. Avoidance, loss prevention, loss reduction, separation, and diversification are risk control techniques that can be applied to property loss exposures. B. The risk control techniques commonly selected for property loss exposures are the same regardless of the type of property. C. Commercial property underwriters commonly assess fire loss exposures based on each building's construction, occupancy, protection, and external exposure. D. Risk control techniques commonly selected to reduce one property cause of loss, such as fire, are equally effective with other causes of loss.

C. Commercial property underwriters commonly assess fire loss exposures based on each building's construction, occupancy, protection, and external exposure.

The Transportation Network Driver Coverage (No Passenger) endorsement uses the wording of the Public or Livery Conveyance Exclusion and includes an exception that A. Provides coverage when the insured is logged into a transportation network platform until the driver accepts a passenger's request. B. Adds a transportation network platform definition. C. Covers share-the-expense carpooling and operation of an auto without passengers while the driver is logged into a transportation network platform. D. Specifies that coverage does not apply to Part C—Uninsured Motorists Coverage.

C. Covers share-the-expense carpooling and operation of an auto without passengers while the driver is logged into a transportation network platform.

The property casualty insurance policy provisions that indicate who or what is covered, and where and when coverage applies, are found in the A. Definitions. B. Insuring agreements. C. Declarations. D. Miscellaneous provisions.

C. Declarations.

Larry drove his car and was involved in a two-car accident caused by the other driver, who was uninsured. The at-fault driver offered Larry a substantial amount of money in satisfaction of his damages. Larry accepted the money in settlement of his losses and released the other driver from further liability. Larry later submitted an uninsured motorists claim under his Personal Auto Policy (PAP). The uninsured motorists claim would be A. Paid in addition to the money paid by the at-fault driver. B. Paid for damages accruing after the settlement with the at-fault driver. C. Denied because coverage under these circumstances is excluded. D. Denied because the at-fault driver can be considered self-insured under the circumstances.

C. Denied because coverage under these circumstances is excluded.

When an insured is choosing between replacement cost and actual cash value on a policy, the insured should A. Evaluate the age of the building and, if it is over 50 years old, choose the replacement cost option. B. Choose replacement cost if it wants to include contents at the owner's residence. C. Determine if the policy limits is adequate for replacement cost. D. Add actual cash value if it wants to waive the coinsurance condition.

C. Determine if the policy limits is adequate for replacement cost.

Risk can be classified as diversifiable or nondiversifiable. Which one of the following statements is true with respect to this type of risk classification? A. Private insurance tends to concentrate on nondiversifiable risks; government insurance is often suitable for diversifiable risks. B. Inflation, unemployment and natural disasters, such as hurricanes, are examples of diversifiable risk. C. Diversifiable risks tend not to be correlated so they can be managed through diversification or spread of risk. D. Systemic risks are generally diversifiable.

C. Diversifiable risks tend not to be correlated so they can be managed through diversification or spread of risk.

Which one of the following risk control techniques is more commonly applied to managing business risk rather than hazard risk? A. Avoidance B. Separation C. Diversification D. Duplication

C. Diversification

The risk control technique that spreads loss exposures over numerous projects, products, regions, or markets is A. Duplication. B. Loss prevention. C. Diversification. D. Separation.

C. Diversification.

Sally has an unendorsed HO-3 policy. Sally's swimming pool was drained by vandals who opened a drain valve. The water was replaced at a cost of $2,500 to Sally, including labor to deliver and pump the water. The HO-3 policy A. Covers the labor cost of replacing the water, but not the cost of the water. B. Covers the cost of the water up to a $1,000 sublimit. C. Does not cover the cost of the replaced water. D. Covers the full cost of the replaced water.

C. Does not cover the cost of the replaced water.

Which one of the following is a term used to represent premium that has been earned but not yet billed? A. Reinstatement premium B. Additional reported premium C. Earned but not reported D. Earned premium adjustment

C. Earned but not reported

Which one of the following statements is correct with respect to earthquake coverage? A. Earthquake coverage excludes loss involving volcanic eruptions. B. Earthquake is uninsurable because it represents a catastrophic loss exposure. C. Earthquake insurance is expensive and limited in availability in areas with a high probability of severe earthquake damage. D. In earthquake-prone areas, in which private insurers are hesitant to provide earthquake insurance, coverage can be obtained through the National Earthquake Insurance Program (NEIP).

C. Earthquake insurance is expensive and limited in availability in areas with a high probability of severe earthquake damage.

The demand for technology is a powerful factor in the insurance marketplace. For insurance producers and customers, which one of the following is the primary demand for technology in marketing applications? A. Regulatory controls B. Sustainability C. Ease of use D. Low cost

C. Ease of use

Which one of the following accounting standards or rules may apply to self-insured liabilities related to workers compensation claims? A. Generic accounting B. Insurance accounting C. Employee benefit accounting D. Financial accounting

C. Employee benefit accounting

Which one of the following statements is correct with respect to the Building and Personal Property Coverage Form's (BPP) coverage for personal property of others? A. The BPP covers personal property of others while it is located anywhere in the world. B. Coverage for personal property of others applies only if the insured is legally responsible for the damage. C. Even if the insured does not buy coverage for personal property of others the BPP still provides a coverage extension for personal property of others, which is limited to $2,500 at each insured location. D. The BPP specifically excludes coverage for businesses (bailees) that have customers' property in their custody, such as laundries, dry cleaners, appliance repair shops, and furniture upholstery shops.

C. Even if the insured does not buy coverage for personal property of others the BPP still provides a coverage extension for personal property of others, which is limited to $2,500 at each insured location.

A storm causes power lines to break 10 miles from the insured's premises. The loss of electrical power causes food in the insured's freezer to thaw and spoil. Coverage for this loss is A. Covered because damage resulting from loss of electrical power is covered. B. Covered because it was caused by a covered peril off the residence premises. C. Excluded because the power failure occurred off the residence premises. D. Not covered because food is not considered personal property.

C. Excluded because the power failure occurred off the residence premises.

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 A. Audit compliance. B. Adherence to underwriting guidelines. C. Financial capacity. D. Regulation.

C. Financial capacity.

Which one of the following is true concerning claims data used in development triangles? A. Policy year is by far the most common organizational approach for claims data in the U.S. and Canada when creating development triangles. B. Reinsurers often organize claims data by underwriting year, which is similar to calendar year. C. For self-insurers, the policy year, fiscal year, and accident year are often the same. D. Actuaries use annual - but not monthly, quarterly, or semiannual - data for developing estimates of unpaid claims.

C. For self-insurers, the policy year, fiscal year, and accident year are often the same.

The retention ratio as an underwriting performance measure is the percentage of A. Underwriting expenses to written premiums. B. Policies written to policies quoted. C. Premium held for losses. D. Insurance policies renewed.

D. Insurance policies renewed.

Grace owns two vehicles that are insured under her Personal Auto Policy (PAP). One of the vehicles is covered for both collision and other than collision (OTC). The other is covered only for OTC. The collision deductible is $500, and the OTC deductible is $250. Grace borrowed her neighbor Helen's vehicle one day to run an errand while both of her vehicles were unavailable. On her way home, she lost control of the vehicle and hit a tree. There were no serious injuries, but the damage to the vehicle was $5,000. Helen's PAP covers the vehicle for OTC coverage only, subject to a $250 deductible. Which one of the following statements regarding this scenario is true? A. Grace's PAP insurer will pay $4,750 for this loss. B. There is no coverage available under either Grace's PAP or Helen's PAP. C. Grace's PAP insurer will pay $4,500 for this loss. D. Helen's PAP insurer will pay $4,750.

C. Grace's PAP insurer will pay $4,500 for this loss.

Jim and Sue, a young married couple, are under contract to purchase a condominium unit. Which one of the following ISO policy forms is best designed to meet their homeowners insurance needs? A. HO-2—Broad Form B. HO-4—Contents Broad Form C. HO-6—Unit-Owners Form D. HO-8—Modified Coverage Form

C. HO-6—Unit-Owners Form

Which one of the following statements is correct with respect to the expected cost of losses or gains? A. The expected cost of gains or losses includes only the direct costs associated with a particular risk. B. Calculating the expected cost of losses or gains for pure risks is more complex than for speculative risks. C. Industrial accidents can illustrate the various costs that need to be accounted for in determining cost of losses. D. The expected cost of losses is equal to the uninsured portion of any bodily injury or property damage.

C. Industrial accidents can illustrate the various costs that need to be accounted for in determining cost of losses.

Which one of the following statements is correct regarding coverage for a "newly acquired auto" under the Personal Auto Policy? A. If a "newly acquired auto" replaces a vehicle shown in the declarations, it is automatically covered for 30 days with the same coverages, limits, and deductibles as the vehicle it replaces. B. If a "newly acquired auto" is in addition to any vehicles shown in the declarations, it is automatically covered for 14 days with liability limits equal to the minimum required by state financial responsibility laws. C. If a "newly acquired auto" replaces a vehicle shown in the declarations, it is automatically covered for the remainder of the policy period, even if the insured does not ask for coverage. D. If a "newly acquired auto" is in addition to any vehicles shown in the declarations, it is automatically covered for a period of 30 days after the named insured becomes the owner.

C. If a "newly acquired auto" replaces a vehicle shown in the declarations, it is automatically covered for the remainder of the policy period, even if the insured does not ask for coverage.

Which one of the following statements is correct with respect to umbrella liability insurance? A. Umbrella liability polices provide coverage for gaps in underlying policies, but will not provide coverage when the aggregate limits of the underlying policies have been exhausted. B. Policy language and underwriting rules are standardized among umbrella liability insurers. C. If an insured fails to maintain underlying insurance with agreed limits, the umbrella policy will respond as though the required underlying coverage is in place. D. Most umbrella liability policies do not contain a deductible or self-insured retention.

C. If an insured fails to maintain underlying insurance with agreed limits, the umbrella policy will respond as though the required underlying coverage is in place.

After identifying and analyzing loss exposures and evaluating and selecting the appropriate risk management techniques, the next step in the risk management process is to A. Monitor the results. B. Revise the risk management program. C. Implement the selected techniques. D. Decide on risk financing techniques.

C. Implement the selected techniques.

Which one of the following is true regarding the loss elimination ratio (LER) approach to determining rate relativities for deductibles? A. This approach assumes that the deductible relativity is equivalent to the ultimate losses and loss adjustment expenses (LAE) after application of the deductible divided by the net losses and LAE. B. If the ground-up losses are known, data from policies with deductibles greater than the deductible being prices cannot be used to calculate the LER. C. In the LER approach, the actuary calculates the amount of losses that are eliminated going from full coverage to a deductible or by going from one deductible to a higher deductible. D. If the ground-up losses are not known, data from policies with deductibles greater than the deductible being priced can be used to calculate the LER.

C. In the LER approach, the actuary calculates the amount of losses that are eliminated going from full coverage to a deductible or by going from one deductible to a higher deductible.

Under which one of the following provisions of the Building and Personal Property Coverage Form (BPP) is the maximum payment $10,000 or five percent of the building limit, whichever is less? A. Outdoor Property coverage extension B. Debris Removal additional coverage C. Increased Cost of Construction additional coverage D. Pollutant Cleanup and Removal additional coverage

C. Increased Cost of Construction additional coverage

The McCarran-Ferguson Act in the U.S. exempts insurers from part of the U.S. Sherman Anti-Trust Act. As a result, advisory organizations can collect data from numerous insurers. The most direct benefit of this is A. Increased equity in pricing among insureds. B. Increased competition. C. Increased credibility of combined experience. D. Increased protection against insurer insolvency.

C. Increased credibility of combined experience.

Regulators protect insurance consumers when a claim occurs by ensuring that A. Claimants do not pad their claims to obtain greater claim payments than are warranted. B. Insurers obtain reimbursement from all responsible parties. C. Insurers follow fair claim handling practices. D. Parties do not file frivolous claims against insurers.

C. Insurers follow fair claim handling practices.

Which one of the following statements is correct with regard to notice of loss requirements under property policies? A. In the case of claims involving criminal acts, insurers must report the events to police within 24 hours of receiving notice. B. The prompt notice requirement frequently becomes an issue between insurers and insureds. C. Insurers require prompt notice of claims because claim representatives can't properly investigate losses after too much time has passed. D. Insureds are required to submit written notice of losses to insurers using the form specified in the policy wording.

C. Insurers require prompt notice of claims because claim representatives can't properly investigate losses after too much time has passed.

The total trend factor A. Is calculated by adding the current trend factor and the projected trend factor. B. Adjusts earned premium to the most recent average written premium level. C. Is calculated by multiplying the current trend factor and the projected trend factor. D. Brings historical earned premium to current rate level.

C. Is calculated by multiplying the current trend factor and the projected trend factor.

The most valid criticism of schedule rating is that A. It allows variance from standard class rates. B. It is not based on characteristics of individual risks. C. It can be based on subjective criteria. D. It is based on historical, not projected, experience.

C. It can be based on subjective criteria.

Which one of the following statements about Inflation Guard optional coverage of the Building and Personal Property Coverage Form (BPP) is true? A. It leaves policy limits unchanged while increasing the annual premium by the rate of inflation. B. It is automatically added whenever the Agreed Value optional coverage is added. C. It is automatically increases the limit of insurance by the percentage of annual increase shown in the declarations. D. It is available only on business personal property.

C. It is automatically increases the limit of insurance by the percentage of annual increase shown in the declarations.

Which one of the following statements is correct with respect to the Preservation of Property additional coverage of the Building and Personal Property Coverage Form (BPP)? A. It extends the policy to protect covered property for up to 180 days at the new location. B. The protection provided under this additional coverage is over and above the limits of insurance stated in the declarations. C. It protects against "any direct physical loss or damage" and is not limited to either the covered causes of loss or locations stipulated in the coverage form. D. It does not provide protection while the property is in transit to the new location.

C. It protects against "any direct physical loss or damage" and is not limited to either the covered causes of loss or locations stipulated in the coverage form.

Which one of the following statements is the purpose of the No Benefit to Bailee condition of the Commercial Property Conditions Form? A. It allows bailees to limit their liability for others' property by using contractual provisions. B. It relieves bailees of liability to bailors for any damage to the property they hold. C. It reinforces the insurer's right of subrogation against the bailee. D. It relieves bailees of liability for damage if the damage is recoverable under insurance carried by the bailor.

C. It reinforces the insurer's right of subrogation against the bailee.

Which one of the following statements is correct with respect to underwriting umbrella liability insurance? A. If the insurer providing the underlying coverage is unable to defend a claim, the umbrella insurer is relieved of its duty to do so. B. Umbrella policy underwriters need not concern themselves with the specific coverage provided under the underlying policies or endorsements. C. It requires careful analysis of the loss exposures covered by the underlying policies, plus those exposures covered only by the umbrella policy. D. Umbrella liability insurance policies are generally written with relatively low limits because they are excess of underlying coverage.

C. It requires careful analysis of the loss exposures covered by the underlying policies, plus those exposures covered only by the umbrella policy.

Which one of the following statements is correct with respect to the Control of Property condition of the Commercial Property Conditions Form? A. It prohibits the insured from abandoning damaged property to the insurer. B. It states that a violation of a policy condition at one location will suspend coverage at all locations. C. It states that coverage under the policy will not be affected by acts or omissions of persons other than the insured, if the others are not acting under the direction or control of the insured. D. It requires the insured to give the insurer access to the premises in order to make inspections and to review the insured's accounting and other records.

C. It states that coverage under the policy will not be affected by acts or omissions of persons other than the insured, if the others are not acting under the direction or control of the insured.

Sammy is the named insured on an HO-3 policy covering his family's home. Sammy and his wife, Sally, have a young daughter, Suzie, and a grown-up son, Steve, who lives with them, and they own a cocker spaniel puppy. While a neighboring couple and their five-year-old son, Jay, were visiting, the puppy bit Jay. Jay suffered a serious wound and his parents sued Sammy and Sally. All of the following are insureds under the HO-3, EXCEPT: A. Steve B. Suzie C. Jay D. Sally

C. Jay

Bob and Diane Rothwell's rural home is insured with an HO-3 policy. During spring clean up, the Rothwells hired a college student to help clean up and burn the brush that had accumulated over the prior season. As the brush pile was burning, an unexpected wind carried the fire across the Rothwells' pasture. Bob and Diane, their 15-year-old son Jeff, Diane's father who was visiting, the college student, and a neighbor all worked together to put out the fire before it spread to the neighbor's yard. They all suffered some burns. All of the parties listed below will be able to collect compensation for their medical bills to treat their burns from the Medical Payments to Others coverage from the Rothwells' HO-3, EXCEPT: A. The neighbor B. The college student C. Jeff D. Diane's father

C. Jeff

Jon is an owner of a car insured with a Personal Auto Policy (PAP) that includes medical payments coverage. A friend loaned his motorcycle to Jon for a weekend ride. Jon was injured while riding the motorcycle when it collided with a truck. Which one of the following is correct regarding Jon's PAP coverage for his medical bills? A. Jon would not be eligible for medical payments coverage under the PAP if injured while driving the motorcycle but would be eligible for such coverage if injured while riding as a passenger on the motorcycle. B. Jon is not eligible for medical payments coverage under the PAP because the injury did not occur on his own property. C. Jon is not eligible for medical payments coverage under the PAP because he was injured while occupying a motorcycle. D. Jon is eligible for medical payments coverage under the PAP because he was injured while occupying a motorcycle on a public highway.

C. Jon is not eligible for medical payments coverage under the PAP because he was injured while occupying a motorcycle.

When uncertainty exists, a conflict can arise between reliability and A. Completeness. B. Transparency. C. Lack of bias. D. Verifiability.

C. Lack of bias.

Which one of the following statements is true regarding exposures for large commercial risks? A. With composite rating, each exposure measure is audited throughout the policy term with commensurate adjustments to the premium. B. In loss-rated composite rating, premium is based on the individual risk's historical loss experience using standard rating algorithms. C. Large commercial risks present challenges for ratemaking, so typical exposure bases such as payroll or an item's value may not be useful. D. Composite rating is used for some large commercial risks when the amount of exposure stays consistent throughout the policy period.

C. Large commercial risks present challenges for ratemaking, so typical exposure bases such as payroll or an item's value may not be useful.

JNL Construction is a general contractor. As the risk management professional for JNL, Marie should be aware of the company's contractual obligations, as well as the contractual obligations that others owe JNL. This knowledge is necessary for Marie to meet which one of the following pre-loss risk management goals? A. Tolerable uncertainty B. Social responsibility C. Legality D. Economy of operations

C. Legality

As part of its risk management program, a vending company installed a new top of the line security system with an expectation of fewer thefts and A. Higher expected losses. B. Increased anxiety. C. Less residual uncertainty. D. Increased residual uncertainty.

C. Less residual uncertainty.

Which one of these is not an example of a coverage that is excluded under Coverage A of the CGL coverage form because it is insured under another policy? A. Workers compensation B. Pollution liability C. Liquor liability D. Automobile liability

C. Liquor liability

Research concerning the insurance rating approaches of noncompetitive rating (NCR) and competitive rating (CR) has found A. Little evidence that NCR laws tend to narrow the range of prices. B. Conclusive evidence that NCR jurisdictions have lower loss ratios than CR jurisdictions. C. Little evidence that excessive pricing occurs in the absence of an NCR law. D. NCR requirements eliminate delay in obtaining rate relief.

C. Little evidence that excessive pricing occurs in the absence of an NCR law.

While a contractor is repairing a sidewalk, a pedestrian trips over a bag of cement and is injured. The type of commercial general liability loss exposure that this example demonstrates is known as A. Completed operations. B. Premises. C. Operations. D. Products.

C. Operations.

Mary works as a volunteer at a local library. The library is covered by an unendorsed commercial general liability policy. Which one of the following best describes Mary's status under the policy if she is named in a lawsuit by a visitor that was injured in the library? A. Mary would not be covered. B. Mary would be an insured partner. C. Mary would qualify as an insured. D. Mary would be a named insured.

C. Mary would qualify as an insured.

Chuckie's chicken distributor researches the benefits of consuming chicken versus consuming beef. In November 2011, Chuckie's publishes a brochure outlining the potential health hazards of consuming beef and explaining why chicken is a healthier alternative. Chuckie continues to publish and distribute the same brochure for six months. In March 2012, several beef distributors file a suit against Chuckie's for personal and advertising injury. Which one of the following exclusions would apply to this claim under Coverage B of Chuckie's Commercial General Liability Coverage Form (CGL) with a policy period of January 2012 - January 2013? A. Knowing violation of rights of another B. Material published with knowledge of falsity C. Material published prior to the policy period D. Unauthorized use of another's name or product

C. Material published prior to the policy period

Which one of the following is a sublimit subject to the each occurrence limit of a CGL policy? A. Products-completed operations limit B. Defense costs limit C. Medical expense limit D. Personal and advertising injury limit

C. Medical expense limit

Which one of the following best identifies an insured under Part C—Uninsured Motorists Coverage of the Personal Auto Policy (PAP)? A. Passengers in a covered auto who suffer bodily injury caused by an insured motorist B. A surviving neighbor of an insured killed in an accident caused by an uninsured driver C. Members of the named insured's family who as pedestrians are injured by an uninsured motorist D. Occupants of an uninsured vehicle that collides with the insured vehicle

C. Members of the named insured's family who as pedestrians are injured by an uninsured motorist

Which one of the following policy provisions deals with the relationship between the insured and the insurer or to help establish procedures for implementing the policy? A. Conditions B. Insuring agreements C. Miscellaneous provisions D. Provisions

C. Miscellaneous provisions Insuring agreement - Insurer promises to pay to the insured, to pay on behalf of the insured, to defend the insured, and/or to provide various additional services Conditions - Insuring agreement is only enforceable if insured has fulfilled contractual duties specified in policy conditions Miscellaneous provisions - deal w/ the relationship b/w the insured and the insurer or help to establish working procedures for implementing the policy

Edna, who participates in a homeowners' reciprocal exchange knows that the members of the exchange insure members' loss exposures. A policy issued by the reciprocal insurer specifies the attorney-in-fact's authority to implement its powers on behalf of Edna and the other members of the exchange. Information regarding the powers of the attorney-in-fact is most likely to be found in Edna's policy's A. Conditions. B. Insuring agreement. C. Miscellaneous provisions. D. Declarations.

C. Miscellaneous provisions.

Underwriter Joe, in measuring a shoe store's potential loss severity calculated what the expected loss would be under routine and anticipated operating conditions. Joe examined the fire divisions, construction and hazards and his calculations also assumed that all fire protection services were working. Joe was using which one of the following measures to determine the potential loss severity for the shoe store exposure? A. Amount subject B. Probable maximum loss C. Normal loss expectancy D. Policy amount

C. Normal loss expectancy

Jessie was away from home and wanted to charge the battery on his laptop computer. He left the laptop in his car, plugged into the cigarette lighter. Jessie later discovered that his car had been broken into and his laptop had been stolen. Jessie's car is insured under an unendorsed Personal Auto Policy (PAP). Disregarding any deductibles, what amount will Jessie's insurer pay for the laptop? A. Replacement costs B. Actual cash value C. Nothing D. The amount necessary to replace the item with property of like kind and quality

C. Nothing

The Coverage B—Personal and Advertising Injury Liability of the Commercial General Liability (CGL) Coverage Form parallels the Coverage A insuring agreement, but personal and advertising injury applies to an A. Physical injury arising from the insured's business. B. Accident arising from the insured's business. C. Offense arising out of the named insured's business. D. Occurrence arising out the named insured's business.

C. Offense arising out of the named insured's business.

Under an asset-liability accounting approach, when is revenue recognized? A. As service is rendered B. Upon completion of an impairment test to ensure revenue viability C. Once the insurer gains control of the asset resulting from the revenue D. Over the policy period

C. Once the insurer gains control of the asset resulting from the revenue

Staff underwriters share research of the market responsibilities with actuarial and marketing departments. Research includes an ongoing evaluation of which one of the following? A. Positive effects of a hard market B. Revisions to coverage forms C. Optimal product mix in the book of business D. Average loss ratio for a book of business

C. Optimal product mix in the book of business

Ben lost in his lawsuit against his neighbor, Jim, alleging that Jim had created a nuisance on his property. Jim has now filed a malicious prosecution claim against Ben. Under which endorsement to Ben's homeowners policy can coverage for this claim be found? A. Additional Liability Coverages endorsement B. Ordinance or Law—Increased Amount of Coverage endorsement C. Personal Injury Coverage endorsement D. Personal Liability endorsement

C. Personal Injury Coverage endorsement

Which one of the following statements is correct with respect to the building coverage provided by the Building and Personal Property Coverage Form (BPP)? A. Machinery and equipment, whether permanently installed or not, must be insured as business personal property. B. Outdoor fixtures are excluded from building coverage. C. Personal property owned by the insured and used to maintain or service the building or its premises is included in the BPP's definition of "building." D. The BPP covers all buildings located at the insured premises whether specifically listed and described in the declarations or not.

C. Personal property owned by the insured and used to maintain or service the building or its premises is included in the BPP's definition of "building."

Historical premium adjusted for actual or expected distributional changes is referred to as A. Premium on level. B. Current rate level. C. Premium trend. D. Premium development to ultimate.

C. Premium trend.

Which one of the following statements is true concerning adjustment of property claims? A. Residential personal property is the only significant source of salvage for the insurance industry. B. Most claim representatives with experience in residential losses can estimate commercial losses. C. Proper settlement of business income claims requires detailed analysis of financial records. D. Claims for extra expense are settled only prospectively.

C. Proper settlement of business income claims requires detailed analysis of financial records.

Insurance Company has underpriced its products in order to increase its market share by attracting customers away from its higher-priced competitors. Insurance Company may be in violation of which one of the following rate regulation standards? A. Rates should be competitive. B. Rates should not be unfairly discriminatory. C. Rates should be adequate. D. Rates should not be excessive.

C. Rates should be adequate.

The HO-3 policy Sections I and II—Conditions contain a liberalization clause that A. Broadens the definition section in accordance with state regulations. B. Increases the limit of liability when there are multiple insureds involved in a claim. C. Specifies how coverage is broadened for insureds when the insurer changes a current edition of a policy. D. Specifies how coverage may be cancelled by the insured.

C. Specifies how coverage is broadened for insureds when the insurer changes a current edition of a policy.

Which one of the following is an endorsement to a Building and Personal Property (BPP) Coverage Form that covers damage to perishable stock due to power outages; on-premises breakdown; or contamination of the insured's refrigerating, cooling, or humidity control equipment? A. Ensuing Loss B. Perishable Stock C. Spoilage Coverage D. Power Outages

C. Spoilage Coverage

Which one of the following statements regarding underwriter responsibilities is correct? A. Line underwriters are generally responsible for completing underwriting audits of the branch or region in which they work. B. Line underwriters often serve on industry committees that study standard policy forms and recommend changes. C. Staff underwriters typically share responsibility for researching fundamental insurance issues with the actuarial and marketing departments. D. Staff underwriters offer valuable technical assistance to the insured's risk manager and the producer who is directly responsible for determining what coverage best meets the insured's needs.

C. Staff underwriters typically share responsibility for researching fundamental insurance issues with the actuarial and marketing departments.

JSP Insurance Agency (JSP) is an exclusive agency for a large writer of personal insurance products. JSP occupies the end unit of a strip shopping center, and a restaurant occupies the adjoining unit. JSP's office is separated by adequate clear space from an adjacent strip of stores. The strip mall is classified as ISO construction class 3 and is made of noncombustible materials. JSP's office is separated from the restaurant by a movable wall to allow the units to be easily resized to meet occupants' needs. The ISO public protection classification (PPC) for the strip mall is 2. Given this information, which one of the following statements is true regarding the physical hazards presented by JSP from a fire underwriting standpoint? A. The external loss exposures presented to JSP require no special consideration due to the construction type and the end unit location within the mall. B. The nature of JSP's business makes it a relatively high-hazard risk from an occupancy standpoint. C. The PPC of 2 indicates that the public fire service should provide at least adequate public protection from fire loss. D. The noncombustible construction of this property means that this building is fire resistive and much safer than joisted masonry or frame construction.

C. The PPC of 2 indicates that the public fire service should provide at least adequate public protection from fire loss. There are 6 different classes of construction that underwriters use. Frame Joisted Masonry Non-Cumbustible Masonry Non-Combustible Modified Fire Resistive Fire Resistive

Concerning the loss data available for increased limits ratemaking, A. Censored loss data reflects the full amount of the loss assuming no policy limits. B. Data available to an actuary is typically not censored at the policy limit. C. The actuary needs to be aware of whether data represents censored or uncensored losses. D. A claims database will typically reflect the full amount of a loss.

C. The actuary needs to be aware of whether data represents censored or uncensored losses.

Which one of the following statements is a basic concept used in evaluation of the premium deficiency reserve? A. Because negative values are established as zeros, the level of aggregation has no effect on the premium deficiency reserve. B. The selected accounting framework has no bearing on the booking of the premium deficiency reserve. C. The balance sheet date is the key date to be used in the calculation of the premium deficiency reserve. D. Fixed and general overhead expenses are included in the premium deficiency reserve calculation.

C. The balance sheet date is the key date to be used in the calculation of the premium deficiency reserve.

Which one of the following statements is correct with respect to the Concealment, Misrepresentation, or Fraud condition of the Commercial Property Conditions Form? A. Concealment involves an active misstatement of fact. B. Any misrepresentation, even if it is immaterial, voids coverage. C. The commercial property coverage part voids coverage if the insured conceals a material fact pertaining to the covered property. D. A misrepresentation is a passive failure to disclose a material fact.

C. The commercial property coverage part voids coverage if the insured conceals a material fact pertaining to the covered property.

When an actuary performs aggregation techniques on many policies at once, A. The fifteenth-day-of-the-month rule is a good approximation, even when policies are not written uniformly during each time period. B. It is customary to treat all policies as if they were written on the last day of a period (such as the last day of a month). C. The customary approach applied to longer periods (quarters or years) makes it less reasonable to assume that policies are uniformly written. D. It is customary to treat all policies as if they were written on the first day of a period (such as the first day a month)

C. The customary approach applied to longer periods (quarters or years) makes it less reasonable to assume that policies are uniformly written.

Sara and her husband Jack own a saddle shop that has been in Sara's family for generations. Because of the sentimental value of the shop, they have invested a great deal in loss prevention devices and safety features to ensure the survival of the business. This tendency to over invest in loss prevention measures creates the risk that A. Risks that should be transferred are being retained. B. The risk management techniques selected are not the best ones for the saddle shop. C. The financial value of the saddle shop is not being maximized. D. Too much emphasis is being placed on maximum earnings in any one period rather than stability of earnings over time.

C. The financial value of the saddle shop is not being maximized.

Which one of the following would qualify as a temporary substitute vehicle under the insured's Personal Auto Policy? A. The insured borrows a company car to drive clients to the airport. B. The insured decides to lease a vehicle for a year after a covered auto is stolen. C. The insured decides to rent a car after a covered auto breaks down during a vacation away from home. D. The insured leaves a covered auto with a neighbor, and borrows the neighbor's van to move a child to college.

C. The insured decides to rent a car after a covered auto breaks down during a vacation away from home.

The most widely-known risk management technique used by individuals is A. Retention, that is, paying for the losses they incur. B. Risk control. C. Maintenance. D. Risk financing by purchasing insurance.

D. Risk financing by purchasing insurance.

Which one of the following is the primary reason that insurers restrict the use of deductibles in liability policies? A. The corresponding premium reductions are too large. B. The full policy limit is payable on top of the deductible amount. C. The insurers want to control liability claims from the outset. D. Liability policies have a high frequency of small claims.

C. The insurers want to control liability claims from the outset.

The Causes of Loss—Special Form provides coverage for which one of the following scenarios? A. Faulty or inadequate planning zoning, surveying, repair, construction or maintenance B. Weather conditions that contribute to other excluded causes of loss C. The melting ice, sleet, or snow on the building or structure D. Acts or decisions, including the failure to act or decide, by any person, group, organization, or governmental body

C. The melting ice, sleet, or snow on the building or structure

Which one of the following statements is correct with respect to the Spoilage Coverage endorsement to a commercial property policy? A. The coverage is subject to 80 percent coinsurance. B. The coverage is provided on a blanket basis. C. The power outage must be caused by conditions beyond the insured's control. D. The coverage applies to perishable stock that deteriorates after failing to sell within a specified period.

C. The power outage must be caused by conditions beyond the insured's control.

Which one of the following is true regarding a rating algorithm? A. Rating algorithms are very similar in general and rarely vary by product. B. The terms "variable premium" and "additive premium" have the same meaning. C. The rating algorithm describes how to combine the various rate components to calculate the overall premium for any risk. D. The portion of total premium derived from expense fees and other dollar additives is referred to as variable premium.

C. The rating algorithm describes how to combine the various rate components to calculate the overall premium for any risk.

For which one of these does the Coverage A Mobile Equipment exclusion eliminate coverage? A. An auto owned by the insured B. An airplane owned by the insured C. The transportation of mobile equipment by an auto that is owned by an insured D. A watercraft owned by the insured

C. The transportation of mobile equipment by an auto that is owned by an insured

Which one of the following financial consequences of loss can be established with a high degree of certainty fairly soon after the loss occurs? A. The value of liability claims related to a defective product B. The value of business lost while the building damaged by fire is being restored C. The value of a building that has been damaged by fire D. The value of a pollution loss

C. The value of a building that has been damaged by fire

Which one of the following best describes effective and efficient risk control measures? A. They are those measures that increase employee satisfaction while reducing the level of risk. B. They reduce risk to a level that is acceptable to the organization's management. C. They are the least expensive measures of all possible effective that achieve an organization's risk management goals. D. They eliminate risk without requiring the organization to make outlays of cash.

C. They are the least expensive measures of all possible effective that achieve an organization's risk management goals.

Which one of the following best describes the reason that many policies with replacement cost provisions give the insured the option of settling the claim based on actual cash value (ACV), and then allowing the insured 180 days to refile the claim on the replacement basis? A. The insurer prefers this method because it allows the insurer more time to adequately establish proper claim reserves. B. The insurer prefers this method because it gives the insurer more time to investigate the loss. C. This provision gives the insured the opportunity to obtain funds from the insurer at the time of the loss and collect full replacement cost upon completion. D. This provision allows the insured to profit from the loss by receiving the actual cash value payment for new property right away to replace old, used property.

C. This provision gives the insured the opportunity to obtain funds from the insurer at the time of the loss and collect full replacement cost upon completion.

While designing a display window, Adam, an employee of Mellfor Clothing Store, was injured when he fell from a ladder. Adam's accident was witnessed by several customers and employees. Adam suffered a broken leg and was unable to work for several weeks. Which one of the following represents a hidden cost to the clothing store resulting from Adam's accident? A. Time lost by customers who witnessed the accident B. Wages paid to Adam while he is unable to work C. Time lost by employees who witnessed the accident D. Medical costs paid to Adam

C. Time lost by employees who witnessed the accident

One of the functions of reinsurance is to increase large-line capacity. Which one of the following best describes this function from the perspective of a primary insurer? A. To limit liability for a single loss that occurs over more than one policy period B. To reduce the financial consequences of a single catastrophic event that causes multiple losses C. To assume a loss exposure with potential financial consequences that are higher than its financial condition would otherwise permit D. To withdraw from a market segment in a geographic area

C. To assume a loss exposure with potential financial consequences that are higher than its financial condition would otherwise permit

In addition to implementing effective and efficient measures, complying with legal requirements, and promoting safety, which one of the following is a goal of risk control efforts? A. To ensure that preventable losses do not adversely affect ongoing operations B. To avoid or prevent all hazard risks to which the organization may be exposed C. To minimize or eliminate significant business interruptions, whatever their cause D. To transfer as much of the organization's hazard and business risks as possible to third parties

C. To minimize or eliminate significant business interruptions, whatever their cause

A premium deficiency reserve is established for which one of the following reasons? A. To avoid performing a liability adequacy test B. To offset future earnings from paid losses at the end of a multiyear policy term reported in financial statements C. To prevent a bias in financial statements toward a future earnings loss from the liability runoff D. To recognize the effect of inflation on reserves

C. To prevent a bias in financial statements toward a future earnings loss from the liability runoff

A company that uses a mobile application or website to connect riders with drivers and arrange transportation in a personal auto for a fee is called a A. Limited transportation network. B. Personal auto company. C. Transportation network company. D. Livery conveyance.

C. Transportation network company.

Taunton General Contractor (TGC) is covered by a workers compensation insurance policy. As the general contractor for a construction project, TGC hires Cintriell Plumbing (CP) as a subcontractor. Which statement about this relationship is true? A. Under most states' workers compensation statutes, TGC will not be held responsible for workers compensation benefits to employees of CP. B. TGC must request an endorsement to its workers compensation policy to provide workers compensation coverage to CP's employees. C. Unless CP has workers compensation insurance, TGC's workers compensation premium should include a charge for CP's employees because TGC's policy will automatically provide coverage for them. D. Because subcontractors are ineligible for coverage under the general contractor's workers compensation policy, TGC must purchase separate workers compensation insurance to cover CP's employees.

C. Unless CP has workers compensation insurance, TGC's workers compensation premium should include a charge for CP's employees because TGC's policy will automatically provide coverage for them.

Which one of the following is an exception to the Coverage E and F Business exclusion to the HO-3 policy? A. Home daycare services performed for neighbors for a fee B. Activities generating income of $10,000 or less during the year preceding the policy period C. Volunteer activities D. A plumbing business operated from the home

C. Volunteer activities

Under which one of the following scenarios would a claim likely never show a case outstanding? A. When an insurer reduces the case outstanding less than the payment made B. When an insurer reduces the case outstanding more than the payment made C. When a claim opens and closes on the same day with a single payment D. When the insurer chooses not to reduce or increase the case outstanding when a payment is made

C. When a claim opens and closes on the same day with a single payment

Ralph has an unendorsed HO-3 policy. While coming home from a coin show, Ralph discovers that his automobile was broken into and a package containing $2,000 in coins, some tools, and groceries was stolen. Disregarding any deductible that may apply, will Ralph's HO-3 insurer pay for the loss of the coins? A. No, theft of money is an excluded peril. B. No, leaving money in an unattended vehicle is negligent behavior, which is excluded. C. Yes, the coins are covered up to a specified limit. D. Yes, the coins are covered up to the limit of Coverage C as long as they are of a collectible nature.

C. Yes, the coins are covered up to a specified limit.

Since passage of the McCarran-Ferguson Act of 1945, federal laws have governed insurance only in prescribed circumstances. Which one of the following is one of these circumstances? A. When a state's laws are administered unfairly and unreasonably to the detriment of the public B. When national banks underwrite insurance C. When a state has no law that regulates an aspect of the business of insurance covered by a federal law D. When bank-related firms sell insurance on the same basis as insurance producers

C. When a state has no law that regulates an aspect of the business of insurance covered by a federal law Subject to certain conditions, the McCarran Act essentially returned insurance regulation to the states. The Act was designed to ensure the preeminence of state regulation not to free insurers from federal antitrust laws.

Benjamin has his home insured with Westfork Mutual under an HO-3 policy for $100,000. He is the named insured on the policy. There are three other residents of the home: Maria, Benjamin's mother; Daniel, his nephew; and Cian, a family friend. An accidental fire causes damage to the home and to personal property of all four occupants. Benjamin reports the loss to Westfork and Fatima, a claim representative, is assigned the claim. Which one of the following will most likely be Fatima's principal concern when analyzing coverage for the loss? A. Whether the limit of insurance is sufficient to cover the damage B. Whether any policy exclusions preclude coverage for the loss C. Whether Maria's, Daniel's, and Cian's property would be covered D. Whether fire is a covered cause of loss under the H0-3 policy

C. Whether Maria's, Daniel's, and Cian's property would be covered

Which one of the following is true regarding organizational post-loss goals? A. The most basic post-loss goal is survival, which means returning the organization to the condition that existed before the loss. B. Social responsibility is a post-loss goal that is unique to not-for-profit and public entities. C. With a post-loss goal of profitability, senior management may establish a minimum amount of profit that no loss can be allowed to reduce. D. With a post lost goal of earnings stability, the risk management professional will seek to raise retention levels to minimize the amount spent on risk transfer mechanisms.

C. With a post-loss goal of profitability, senior management may establish a minimum amount of profit that no loss can be allowed to reduce.

Which one of the following statements is true regarding the four basic ways that premium for annual term policies can be defined? A. Because it is the best estimate of a company's mix of business at a given date, earned premium is used to measure the impact of a rate change on an existing portfolio. B. By the time the policy year is complete (after twelve months), the policy year earned and written premium are equivalent. C. With calendar year aggregation, written premium and cancellation premium can apply to two different calendar years. D. When aggregating premium across groups of policies, the policy year and calendar year aggregations follow the same formula to calculate unearned premium.

C. With calendar year aggregation, written premium and cancellation premium can apply to two different calendar years.

Which one of the following statements is true regarding the derivation of the base rate? A. Using the approximated average rate differential approach to derive a proposed base rate will always yield the same proposed base rate as using the extension-of-exposures approach. B. Determining the base rate is the actuary's first task before selecting the proposed average premium, proposed rate differentials, and proposed fixed expense fees and other additive premium. C. With the extension-of-exposures approach, policies are rerated in consideration of proposed rate differentials, proposed flat premium, and a placeholder value for the unknown proposed base rate (referred to as a seed base rate). D. The same formulas are used to calculate the proposed base rate when there is only variable premium, when rate differentials are not changing, and when there are flat premium components and rate differentials are still not changing.

C. With the extension-of-exposures approach, policies are rerated in consideration of proposed rate differentials, proposed flat premium, and a placeholder value for the unknown proposed base rate (referred to as a seed base rate).

Under the deferral-matching approach to premium accounting A. There is no unearned premium and other liabilities must be established for losses expected during the unexpired policy period. B. The policy premium is recognized as revenue at the time when the insurance contract is signed. C. Written premiums are generally defined as the amount of premium charged for that policy during the reporting period. D. Revenue is recognized once the insurer gains control of the asset resulting from the revenue.

C. Written premiums are generally defined as the amount of premium charged for that policy during the reporting period.

Joe and Kitty Clements have a Personal Auto Policy (PAP). Their granddaughter, Katherine, lives with them. Does Katherine qualify as a "family member"? A. No, Katherine is not a ward or foster child. B. No, Katherine has not been adopted by the Clements. C. Yes, as long as Katherine is a resident of the household. D. Yes, as long as Katherine is an operator of a vehicle owned by the household.

C. Yes, as long as Katherine is a resident of the household.

An insured has a Personal Auto Policy (PAP) to cover his automobile and travel trailer and an HO-3 policy for his home. While on vacation, he unhitched the trailer at a campground for a one-week stay. During the middle of the week, a visitor was injured when an awning on the trailer fell on his head. The visitor made a claim against the insured. Is this a covered claim under the HO-3? A. No, because the awning is not a part of the trailer. B. Yes, because a trailer cannot be a motor vehicle under the motor vehicle exclusion. C. Yes, because a trailer that is not being carried on, towed by, or hitched for towing by a motor vehicle is not subject to the motor vehicle exclusion. D. No, because the trailer is a defined motor vehicle under the HO-3 policy and therefore subject to a liability exclusion.

C. Yes, because a trailer that is not being carried on, towed by, or hitched for towing by a motor vehicle is not subject to the motor vehicle exclusion. Once it is unhitched, it is no longer a motor vehicle as defined.

Rosa owns a car insured with a Personal Auto Policy (PAP) with split limits for liability coverage of $100/$300/$50. The same car is covered with a second PAP with split limits for liability coverage of $25/$50/$10. While driving her car Rosa caused an accident with another vehicle driven by James. James and his passenger, Fred, were injured and they filed suit against Rosa. A court awarded $35,000 to James for his bodily injuries and $110,000 to Fred for his bodily injuries. Which one of the following amounts will be paid under each policy? A. $29,000 under the first PAP and $116,000 under the second PAP B. $35,000 under the first PAP and $110,00 under the second PAP C. $50,000 under the first PAP and $95,000 under the second PAP D. $116,000 under the first PAP and $29,000 under the second PAP

D. $116,000 under the first PAP and $29,000 under the second PAP LIMIT $100 + $25 = $125,000 Total Limit $100,000/$125,000 = 0.8 = 80% LOSS $110,000 + $35,000 = $145,000 $145,000 * 80% = $116,000 $145,000 * 20% = $29,000

Ella Fitzpatrick is retired and living in an adult retirement community. She has a 15-year-old sedan that she keeps for family outings when her children and grandchildren visit. Because she rarely uses the vehicle, and she tries to reduce expenses, Ella has a personal automobile policy with the following low coverage limits which satisfy the minimum requirements of her state: Part A—Liability Coverage $20,000/$40,000/$10,000 limits Part B—Medical Payments Coverage $1,000 per person Part C—Uninsured Motorists Coverage $20,000 combined single limit While on a family outing to a local beach in her state, Ella allowed her grandson, George, to drive her car. George was at fault when he failed to yield to a compact car at an intersection and collided. He injured the driver and passenger of the compact car, causing $15,000 in bodily injuries. The compact car, which has a value of $10,000 was totaled. Ella and George were injured. Ella had medical bills totaling $3,000. George had medical bills totaling $8,000. Which one of the following amounts will Ella's insurer pay for Part A as a result of the accident assuming the covered losses do not reach the coverage limits? A. $10,000 B. $15,000 C. $20,000 D. $25,000

D. $25,000

Oliver has a commercial property policy covering his retail store. The policy has an 80 percent coinsurance clause, and the insurable value of the store is its replacement cost. When the policy was written, the value of the store was $160,000. Assuming the current replacement cost of the store is $150,000, and that it is insured for $120,000, how much will Oliver recover under his insurance policy if the store suffers a $30,000 covered loss? A. $0 B. $22,500 C. $24,000 D. $30,000

D. $30,000

Greatview Insurance has determined that it needs $30 to cover average fixed expenses per exposure for its auto book. The company also has variable expenses of 18% and an underwriting profit goal of 6%. What is the proposed expense fee per exposure for Greatview Insurance? A. $31.91 B. $36.59 C. $37.52 D. $39.47

D. $39.47 $30 / (1.00 - 0.18 - 0.06) $30 / 0.76 = $39.47

Cameron has a Commercial Package Policy (CPP) that has a Building and Personal Property Coverage Form (BPP) with a Causes of Loss - Broad Form covering his building with a $750,000 limit. A tropical storm struck Cameron's building and the strong winds tore most of the shingles from the building's roof and shattered multiple windows with flying debris. The total amount of damages was $20,000 for the windows and $20,000 for the shingles. How much will Cameron's insurer pay for damage to his windows and shingles? A. The damage is not covered B. $20,000 C. $39,000 D. $40,000

D. $40,000

Taunton Company (Taunton) has a Commercial Package Policy (CPP) that has a Building and Personal Property Coverage Form (BPP) with a Causes of Loss—Broad Form. Because the building is older and has unique architectural features, Taunton decided to insure the building on a replacement cost basis. There is a $2 million coverage limit on the building, with a 90 percent coinsurance clause and $2,000 deductible. The building was struck by lightning and a resulting fire caused substantial damage to the building. The cost to repair the damaged portion of the building with materials of like kind and quality was $500,000. At the time of the loss, the replacement cost value of the building was determined to be $2.2 million. How much would the insurer pay when the repairs are completed if the replacement cost option is activated? A. $0 B. $448,000 C. $450,000 D. $498,000

D. $498,000 $2,000,000/$2,200,000 = 90.9% = 91% >>> Coinsurance met Insurer will pay $500,000 for damages - $2,000 deductible

Jill and Tom have a home with a $300,000 replacement cost and an HO-3 policy with a Coverage A limit of $270,000. Lightning strikes the central air conditioning unit and destroys it beyond repair. The unit has a replacement cost of $5,000, is five years old, and has a useful life of 10 years. Ignoring any deductible that might apply, how much will the insurer pay to replace the air conditioning unit? A. $2,500 B. $3,000 C. $4,500 D. $5,000

D. $5,000 The insurer will pay the replacement cost of $5,000 since the dwelling limit equals or exceeds 80% of the replacement cost. Coverage A on an insurance policy is the dwelling coverage amount. The dwelling portion of your insurance covers the physical structure of your home; the walls, floors, ceilings, etc. This coverage protects your home from damage to the actual structure and anything that is permanently attached to the structure.

Larry and his friend John were driving in Larry's sports utility vehicle. A vehicle ran a red light at an intersection and struck them. Larry's vehicle was at a complete stop. The driver of the other vehicle was intoxicated, and clearly at fault in the accident. The drunken driver's automobile insurance had canceled for nonpayment when the accident occurred. Larry and John were taken to the hospital. They incurred the following losses as result of the accident: Larry: $20,000 in medical bills $4,000 in lost wages $20,000 in pain and suffering John: $10,000 in medical bills $2,000 in lost wages $20,000 in pain and suffering Larry has liability limits of $100/$300/$50 and a $100,000 uninsured motorists coverage limit on his Personal Auto Policy (PAP) covering his sports utility vehicle. Which one of the following amounts will Larry's insurer pay as a result of this accident? A. $24,000 B. $36,000 C. $44,000 D. $76,000

D. $76,000

Insurer A knows the expected value of a severity distribution for dwelling property losses is $3,280, and assumes a simple frequency distribution that has only the two possibilities- 70 percent of the time no loss would occur and 30 percent of the time one loss would occur. Which one of the following represents the approximate expected loss? A. $468 B. $689 C. $780 D. $984

D. $984 30% * $3,280

On what basis are financial statements that adhere to generally accepted accounting principles (GAAP) typically produced? A. A liquidation basis B. An asset-liability basis C. A deferral-matching basis D. A consolidated basis

D. A consolidated basis

Which one of the follow best explains how regulators determine which insurers to closely review? A. A claim brought by a consumer against an insurer triggers a close review from the regulator. B. Regulators closely review all insurers on a rotating basis. C. A high insurer employee turnover triggers a close review from the regulator. D. A market analysis is performed and those insurers that have activity outside the normal standards may be given a closer review.

D. A market analysis is performed and those insurers that have activity outside the normal standards may be given a closer review.

One common feature of quota share reinsurance agreements is that the agreement states A. The allocation of the high administrative costs to manage the treaty details, which is generally split equally between the primary insurer and the reinsurer. B. When the primary insurer's liability for additional coverage limits or losses ends, and all remaining losses revert to the reinsurer. C. A dollar amount of the primary insurer's retention per risk that "disappears" for low-limit risks. D. A maximum dollar limit above which responsibility for additional coverage limits or losses reverts to the primary insurer.

D. A maximum dollar limit above which responsibility for additional coverage limits or losses reverts to the primary insurer.

Aaron is a claim adjuster for JSP Insurance Company. He has been assigned a business interruption claim submitted by Jack's Quilt Shop. A major fire at the quilt shop caused it to temporarily close. During the investigation, Aaron learns that the shop owner plans to rebuild the shop in a new configuration, very different from the original design. Given this information, which one of the following is the most suitable loss settlement approach? A. An extra expense settlement B. An actual cash value settlement C. A stated value settlement D. A prospective settlement

D. A prospective settlement

Which one of the following statements is correct with respect to business income coverage? A. Business income coverage written on an actual loss sustained basis is usually subject to a dollar limit. B. When establishing the PML for business income losses, the dollar amount of the direct loss is important. C. A covered business income loss can occur without direct damage to property at the insured premises. D. A seasonal business could suffer a severe business income loss from a relatively short shutdown.

D. A seasonal business could suffer a severe business income loss from a relatively short shutdown.

Which one of the following is a form of excess liability coverage? A. A maximum-possible-loss policy B. A coinsurance policy C. A primary policy D. A self-contained policy

D. A self-contained policy Self-Contained Policy — an insurance policy that consists of a single document that contains all of the insuring agreements between the insurer and the insured. It is often preprinted and standardized to be utilized for a large number of insureds.

Which one of the following is an approach used to determine the initial recognition of losses for the current accident year? A. Historical claim records of past losses B. Projection of aggregate reserves C. Changes in the estimate of incurred losses for the current calendar year D. Accrual of estimated incurred losses based on the level of earned exposure

D. Accrual of estimated incurred losses based on the level of earned exposure

Which one of the following statements regarding monitoring the results of a risk management program is true? A. When performance substantially exceeds the standard, the risk management professional knows that the standard has been appropriately set. B. Risk management professionals generally prefer performance standards that are solely dependent on the organization's loss record. C. A results standard focuses on the quality and quantity of the risk management activities undertaken by the organization. D. Activities standards are necessary to obtain a complete picture of the success or failure of a risk management program.

D. Activities standards are necessary to obtain a complete picture of the success or failure of a risk management program.

Which one of the following statements is correct with respect to the exclusions of an umbrella liability insurance policy? A. The exclusions of an umbrella policy always match those on the underlying policies to avoid any related problems. B. There is no exclusions section of an umbrella policy, since the insuring agreement is written to avoid the need for any. C. The exclusions of an umbrella policy are written so they never invoke the drop-down feature. D. An umbrella policy can use exclusions to broaden or narrow exclusions found in the underlying policies.

D. An umbrella policy can use exclusions to broaden or narrow exclusions found in the underlying policies.

Which one of the following statements is correct with respect to applying risk control techniques to the various types of loss exposures? A. Separation, duplication, and diversification are the most effective risk control techniques for treating liability loss exposures. B. Risk control techniques to reduce a liability loss once it occurs are generally not available. C. The most cost-effective risk control techniques for personnel loss exposures are those aimed at causes of loss that occur outside the workplace. D. Any measure that controls property, liability, or personnel loss exposures also indirectly controls associated net income loss exposures.

D. Any measure that controls property, liability, or personnel loss exposures also indirectly controls associated net income loss exposures.

Insurers can use different methods of setting claim reserves. Which one of the following methods establishes a predetermined dollar amount of reserve for each claim as it is reported? A. Individual case B. Roundtable C. Expert system D. Average value

D. Average value

Underwriting guidelines serve which one of the following purposes? A. Provide for flexible and unstructured decisions B. Provide rates for individual risks C. Allow for the development of insights and experience D. Avoid duplication of effort

D. Avoid duplication of effort

Ace Accounting has a Building and Personal Property Coverage Form (BPP) through Delta Insurance with a limit of $300,000 on business personal property. The insured's computer system is valued at $150,000 and it is insured for $100,000 under a separate electronic data processing (EDP) equipment policy issued by Omicron Insurance. The computer system is totally destroyed by fire, a cause of loss insured under both policies. Which one of the following correctly describes how the loss would be settled? A. The BPP specifically excludes property otherwise insured, so Omicron would pay $100,000 and the insured would have to pay the remaining $50,000 of the loss. B. Because Omicron and Delta both cover the equipment, each insurer would pay half of the loss, or $75,000. C. The BPP policy is primary and would pay the full amount of the loss because it is within the BPP policy limits. D. Because Omicron's policy more specifically describes the computer system, it must pay its limit before Delta pays anything; Delta would pay the remaining $50,000

D. Because Omicron's policy more specifically describes the computer system, it must pay its limit before Delta pays anything; Delta would pay the remaining $50,000

Bob and Martha have an unendorsed HO-3 policy. They purchased a new home and leased furniture for the living room and dining room. The furniture leasing company asked to be added as an additional insured for the leased furniture. If they incur a covered loss to the leased property, a claim draft would likely be payable to A. The named insured only. B. The loss payee only. C. Neither the named insured nor the loss payee. D. Both the named insured and the loss payee.

D. Both the named insured and the loss payee.

An insured's office building is valued $500,000, contents valued $100,000 and leased computers valued $50,000. The insured wants to be certain covered property can be repaired or replaced without any coinsurance or depreciation penalties in the event of physical loss or damage. Which Limits and Optional Coverage(s) on the Building and Personal Property Coverage Form would best suit this insured's wants? A. Seek no Optional Coverages but make sure to provide the insurer a signed statement of values B. Building $500,000 with Agreed Value Optional Coverage; Contents $100,000 with Agreed Value Optional Coverage; Extension of Replacement Cost to Personal Property of Others $50,000 C. Building $480,000 with Replacement Cost Optional Coverages; Contents $80,000 with Replacement Cost and Agreed Value Optional Coverages; Extension of Replacement Cost to Personal Property of Others $40,000 D. Building $500,000 with Replacement Cost and Agreed Value Optional Coverages; Contents $100,000 with Replacement Cost and Agreed Value Optional Coverages; Extension of Replacement Cost to Personal Property of Others $50,000

D. Building $500,000 with Replacement Cost and Agreed Value Optional Coverages; Contents $100,000 with Replacement Cost and Agreed Value Optional Coverages; Extension of Replacement Cost to Personal Property of Others $50,000

Retrospective premium adjustments A. Can be made only during the policy period. B. Can be made only when a policy has been canceled or nonrenewed. C. Result from premium audits. D. Can continue for many years after the original policy term has expired.

D. Can continue for many years after the original policy term has expired.

The commercial property policy Causes of Loss Form that provides coverage for "risks of direct physical loss," unless excluded or limited by the policy is called the A. Causes of Loss—All Risks Form. B. Causes of Loss—Basic Form. C. Causes of Loss—Broad Form. D. Causes of Loss—Special Form.

D. Causes of Loss—Special Form.

Classifying the various types of risk can help in assessing, controlling, and financing risk as part of the risk management process. Which one of the following statements is true regarding the typical classifications of risk? A. Classifications of risk are mutually exclusive. B. All classification pairs can not be applied to any given risk. C. Classifications of risk is not helpful with assessing risk but can assist with the administrative function of risk management. D. Classifications of risk can help with controlling and financing risk.

D. Classifications of risk can help with controlling and financing risk.

Which one of the following is the foundation for legal systems in most of Canada's provinces and most of the Unites States? A. Scholarly interpretations of codes and constitutions B. Civil-law system C. Treatises written by prominent jurists D. Common-law system

D. Common-law system

Walter, a commercial underwriter, is evaluating a CGL application for MedConstruct, a construction company. MedConstruct specializes in building hospitals, nursing homes, senior citizen residences, medical clinics, and related types of buildings. The company has been in business for 15 years and has a very good reputation. The company has grown rapidly and has had some difficulty in hiring sufficient qualified employees to keep up with its heavy schedule. Management is concerned about on-the-job safety and, so far, the company has a reasonably good record when it comes to employee injuries. To which one of the following loss exposures will Walter devote more attention when evaluating this risk? A. Premises medical payments liability loss exposure B. Products liability loss exposure C. Premises liability loss exposure D. Completed operations liability loss exposure

D. Completed operations liability loss exposure

Which one of the following is considered the primary advantage of using retention as a risk financing technique? A. Timing of cash flows B. Control of claims process C. Incentives for risk control D. Cost savings

D. Cost savings

Lance purchased an electric knife from Sharp Objects. When he first used the knife to carve a turkey, it malfunctioned resulting in injury to Lance. Sharp Objects' Commercial General Liability (CGL) Coverage Form will do which one of the following? A. Cover any damages payable as a result of Lance's injuries up to the general aggregate limit B. Cover any medical expenses incurred by Lance under Coverage C as well as the damage to the knife under Coverage B C. Cover the cost of replacing the knife but not cover Lance's injuries D. Cover any damages payable as a result of Lance's injuries subject to both the each occurrence limit and the products-completed operations aggregate limits

D. Cover any damages payable as a result of Lance's injuries subject to both the each occurrence limit and the products-completed operations aggregate limits

The HO-3 policy provides special form coverage rather than named perils coverage for which one of the following? A. Coverage A—Dwelling only B. Coverage D—Loss of Use C. Coverage C—Personal Property D. Coverage A—Dwelling and Coverage B—Other Structures

D. Coverage A—Dwelling and Coverage B—Other Structures Insured perils for Coverage A—Dwelling and Coverage B—Other Structures are grouped together because both coverages provide special form coverage for real property items with similar exposures to loss.

The Inflation Guard endorsement gradually and automatically increases limits throughout the policy period in homeowners policies for A. Coverage A only. B. Coverages A and B only. C. Coverages A, B, and C only. D. Coverages A, B, C, and D.

D. Coverages A, B, C, and D. The endorsement provides an automatic increase in the amount of each of the Section I—Property coverages.

Jancy Insurance Company (Jancy) has been very successful at writing homeowners insurance for over 10 years. In an effort to grow its personal auto book, Jancy is offering all current homeowners policyholders a 15 percent discount on their personal auto premium. This is an example of which one of the following applications for predictive analytics? A. Geographic segmentation B. Predictive analytics C. Individualized customer support D. Cross-selling

D. Cross-selling

The Coverage B—Personal and Advertising Injury Liability insuring agreement parallels the Coverage A— Bodily Injury and Property Damage Liability insuring agreement in that the insurer agrees to A. Pay for damages that arise from false arrest, detention or imprisonment. B. Pay for medical expenses such as ambulance, hospital and professional nursing care. C. Provide coverage for liability assumed under contract. D. Defend the insured against any suit seeking such damages.

D. Defend the insured against any suit seeking such damages.

Hallbinger Shoe Store closed for two months due to smoke and water damage resulting from a fire in an adjacent structure. All of the following are important issues involved in adjusting Hallbinger's business income claim, EXCEPT: A. Deciding whether to settle the claim before or after operations have been resumed B. Determining the time period necessary for the store to be restored to use. C. Determining whether Hallbinger used due diligence in completing repairs D. Determining whether the owner of the adjacent structure had property insurance on the structure

D. Determining whether the owner of the adjacent structure had property insurance on the structure

Which one of the following risk control techniques will reduce loss severity and make losses more predictable, without increasing loss frequency significantly? A. Diversification B. Loss prevention C. Separation D. Duplication

D. Duplication

The depreciation amount used in calculating actual cash value (ACV) under property insurance policies is based on A. Accounting depreciation. B. A standard depreciation table. C. Technical depreciation. D. Economic depreciation.

D. Economic depreciation.

The state advisory organization has developed a new homeowner's form which increases the limits of liability for personal property in guns, silverware, jewelry, and boats. Jancy Insurance company is considering modifying this form for its own use. Which one of the following members of Jancy's staff would be involved in the research and development of this new form? A. Antonia, the accounting manager B. Merve, the claims manager C. Clara, the underwriting manager D. Emma, the staff underwriter

D. Emma, the staff underwriter

All of the following factors are considered when underwriting workers compensation insurance, EXCEPT: A. Cumulative trauma disorders B. Subcontractors C. Management attitude and capability D. Employee gender and marital status

D. Employee gender and marital status

Which one of the following is the best selection of a reason why Part D—Coverage for Damage to Your Auto in a Personal Auto Policy (PAP) requires deductibles? A. Discourages carefulness B. Induces the number of small claims C. Increases premiums D. Encourages policyholder responsibility

D. Encourages policyholder responsibility

Which one of the following objectives of insurance regulation is critical because of the legal requirement for individuals and businesses to have auto insurance? A. Regulating insurance rates B. Specifying policy language for coverages C. Ensuring that insurers follow fair claim handling practices D. Ensuring availability of coverage

D. Ensuring availability of coverage

Under a deferral-matching approach, loss reserves are established for A. Both the expired and the unexpired portion of the policy period. B. Deficiencies in reserves for expected losses over the unexpired term. C. The unexpired portion of the policy period. D. Events that occur during the expired portion of the policy period.

D. Events that occur during the expired portion of the policy period.

Which one of the following statements is correct with respect to the business personal property coverage provided by the Building and Personal Property Coverage Form (BPP)? A. "Your business personal property" specifically excludes labor, materials, or services furnished by the insured on the personal property of others. B. The definition of business personal property limits the coverage to furniture, fixtures, machinery and equipment owned by the insured and used in the insured's business. C. Leased personal property for which the named insured has a contractual responsibility to procure coverage is excluded from the BPP, but the coverage can be added by endorsement. D. Except for limited off-premises coverage, coverage for business personal property applies only when the property is located in or on the described building or in the open (or in a vehicle) within 100 feet of the building or structure or within 100 feet of the premises, whichever is greater.

D. Except for limited off-premises coverage, coverage for business personal property applies only when the property is located in or on the described building or in the open (or in a vehicle) within 100 feet of the building or structure or within 100 feet of the premises, whichever is greater.

Mary and Bob have their house insured under an HO-3 policy. Bob intentionally sets fire to their home. Mary was not involved in the arson. The HO-3 policy will A. Cover the loss if Mary submits the claim, but Bob is not entitled to coverage. B. Cover the loss because fire is an insured peril. C. Exclude the loss under the Neglect exclusion. D. Exclude the loss under the Intentional Loss exclusion.

D. Exclude the loss under the Intentional Loss exclusion.

Jack and Susan own and manage a hotel. They have posted signs that they are not responsible for the property of hotel guests. However, if a court establishes that they do have to reimburse a guest for a property loss, it will most likely be decided on the legal basis of A. Representation of another party. B. Contractual obligations. C. Exposure to absolute or strict liability. D. Factual expectancy.

D. Factual expectancy.

Some premium payment plans may include additional payments that exceed the amount required if the premium was paid in full at the policy inception. Such additional payments that are a function of the amount of premium payment are treated under U.S. regulatory accounting as A. Additional premium. B. Part of the premium. C. Service charges. D. Finance charges.

D. Finance charges.

An excess liability policy covers a liability loss that exceeds the underlying limits only if the loss is covered by the underlying insurance. What type of excess liability policy is this? A. Combination policy B. Self-contained policy C. Aggregate policy D. Following-form policy

D. Following-form policy

Which one of the following statements is correct regarding insurance regulatory constraints on growth? A. When an insurer's policyholders' surplus increases, that insurer's ability to grow its premium is diminished. B. State regulators prohibit reinsurers from providing primary insurers with payment for policy acquisition. C. State insurance regulation mandates that, for accounting purposes, premiums be recognized as revenue at the time a new policy is sold and expenses be recognized as they are earned over the policy's life. D. From a regulator's perspective, if an insurer's ratio of written premium to policyholders' surplus exceeds 3 to 1, the insurer is selling more insurance than is prudent relative to the size of its net worth.

D. From a regulator's perspective, if an insurer's ratio of written premium to policyholders' surplus exceeds 3 to 1, the insurer is selling more insurance than is prudent relative to the size of its net worth.

Davison Inc. is a retail store that sells home appliances. A customer in the store is burned while trying out the features on a new toaster oven. The amount paid for the customer's injury would be subject to which one of the following limits of Davison's CGL policy? A. Personal and advertising injury limit B. Products-completed operations aggregate limit C. Products-completed operations occurrence limit D. General aggregate limit

D. General aggregate limit

Sue and Rich are under contract to purchase a historic home in a city where local property values, including the value of the historic home, are far below replacement cost. Which one of the following ISO homeowners policies would likely be most suitable for Sue and Rich? A. HO-2—Broad Form B. HO-4—Contents Broad Form C. HO-6—Unit-Owners Form D. HO-8—Modified Coverage Form

D. HO-8—Modified Coverage Form

Jessica has her car insured for liability, collision, and comprehensive coverage with Greatview Insurance. She has decided to purchase a pickup truck as a second vehicle. As she is leaving the dealership with her new pickup, she accidently collides with another vehicle, causing damage to both. Neither she nor the other driver is injured. Jessica returns home and calls her insurer to advise of her new purchase and to report the claim. Her claim is assigned to Lucas. After identifying the policy and entering initial loss information, which one of the following describes how Lucas would most likely proceed? A. He would set a liability reserve for general damages arising from the accident. B. He would check whether the dealership has insurance to cover damage to Jessica's new truck. C. He would advise Jessica that there is no coverage because the pickup is not listed on the policy. D. He would confirm that a "newly acquired auto" meets the policy definition of "your covered auto."

D. He would confirm that a "newly acquired auto" meets the policy definition of "your covered auto." Lucas would confirm that a "newly acquired auto" meets the policy definition of "your covered auto".

Precision Performance is a company that specializes in customizing vintage and current model automobiles and trucks. The company has three mechanics bays, a body shop, a paint shop, and a custom welding and metal fabricating shop all housed in a single-story, noncombustible metal building. The building is 25 years old, in poor repair, and has no fire suppression equipment other than one hand-held fire extinguisher. Its location is rated as Public Protection Class 9. Paint is stored in an attached wooden addition, and there are collection tanks for used oil, radiator fluid, and other similar waste located at the back of the building. The tanks are emptied monthly. Behind the building is a lot where the owner keeps salvaged autos that he uses for parts. To the north is a tire shop in a fire-resistive building, and to the south, separated by a narrow laneway, is a diner in a single-story frame building. The laneway is congested with empty cardboard boxes and other waste from both the diner and Precision Performance. Which one of the following ratings would a property underwriter for a standard insurer most probably give this risk? A. Highly desirable B. Desirable C. Undesirable D. Highly undesirable

D. Highly undesirable

Which one of the following activities is the first step in the business continuity process? A. Evaluate the effect of risks on the organization's critical functions. B. Develop a business continuity plan. C. Develop a business continuity strategy. D. Identify the organization's critical functions.

D. Identify the organization's critical functions.

Which one of the following is an example of a common hazard relating to premises and operations liability loss exposures? A. Forklift trucks with no warning lights B. Poorly maintained underground storage tanks C. Improperly stored explosives D. Inadequate housekeeping

D. Inadequate housekeeping

The HO-3 policy Ordinance or Law additional coverage applies to A. Loss in value to the covered building resulting from the requirements of ordinances or laws. B. Increased construction costs resulting from ordinances or laws requiring a response to the effects of pollutants in or on the covered building. C. Increased construction costs resulting from ordinances or laws that deal with building and safety codes and those that do not deal with building and safety codes. D. Increased costs incurred due to the enforcement of any ordinance or law regulating the construction, demolition, remodeling, renovation, or repair of the insured building.

D. Increased costs incurred due to the enforcement of any ordinance or law regulating the construction, demolition, remodeling, renovation, or repair of the insured building.

William has decided to start a small architecture business. He has rented office space, purchased furnishings, and hired four employees. William knows that he needs to purchase insurance before he can open for business but is not sure what coverages and limits to purchase. Which one of the following insurance distribution systems is most appropriate for William? A. The Internet B. National broker C. Regional broker D. Independent agent

D. Independent agent

When Joshua purchased his home, he did not tell his insurer that he kept flammable chemicals in his basement for use in a hobby. Joshua is aware that storing the chemicals increases the potential for loss to his home. The fact that the insurer does not have this information is an example of which one of the following? A. An exchange of unequal amounts B. Consideration C. The principle of indemnity D. Information asymmetry

D. Information asymmetry

When Joshua purchased his home, he did not tell his insurer that he kept flammable chemicals in his basement for use in a hobby. Joshua is aware that storing the chemicals increases the potential for loss to his home. The fact that the insurer is not aware of this exposure is an example of which one of the following? A. A contract of adhesion B. An exchange of unequal amounts C. Consideration D. Information asymmetry

D. Information asymmetry

Insurer X currently writes minimal insurance business in a state, but it would like to grow significantly. Which one of the following is the least likely basis for Insurer X's rate in this state? A. Loss costs provided by an advisory organization B. Insurer X's own experience countrywide C. Rates used by competitors D. Insurer X's own experience in the state

D. Insurer X's own experience in the state

Risk can be classified as pure or speculative. Which one of the following is the best example of a speculative risk? A. Purchasing an insurance policy B. Buying a new personal vehicle C. Acquiring a new television D. Investing in shares of stock

D. Investing in shares of stock

Which one of the following statements is correct with respect to the Newly Acquired or Constructed Property extension of coverage of the Building and Personal Property Coverage Form (BPP)? A. It specifically excludes coverage for a newly acquired or constructed building at any location if that building will be used as a warehouse. B. It provides automatic coverage for a new building being constructed by or for the insured anywhere within the coverage territory. C. This extension applies to buildings only and does not provide any coverage for business personal property. D. It covers newly acquired buildings, provided the purpose of the newly acquired building is similar to the use of the building described in the declarations.

D. It covers newly acquired buildings, provided the purpose of the newly acquired building is similar to the use of the building described in the declarations.

Which one of the following statements is correct with respect to the Non-Owned Detached Trailers coverage extension of the Building and Personal Property Coverage Form (BPP)? A. The coverage applies while the trailer is attached to any motor vehicle or motorized conveyance, provided it is not in motion. B. The trailer can be used anywhere in the United States. C. Coverage is available only if the insured has no contractual responsibility for loss or damage to the trailer. D. It permits the insured to extend "your business personal property" to include trailers leased to expand office space or to provide additional storage or work areas.

D. It permits the insured to extend "your business personal property" to include trailers leased to expand office space or to provide additional storage or work areas.

Which one of the following statements is correct with respect to the Insurance Under Two or More Coverages condition of the Commercial Property Conditions Form? A. It is necessary because some property might be covered under two or more commercial package policies. B. It explains how to apportion the loss among multiple policies for the purpose of developing rates. C. It states that duplication, or "stacking," of the all applicable limits is allowed in the case of a loss. D. It states that the total payment under all applicable coverage parts is limited to the actual amount of the loss.

D. It states that the total payment under all applicable coverage parts is limited to the actual amount of the loss.

Which one of the following is a policy liability that might exist on an insurer's balance sheet? A. Liability for policies that have yet to be written B. Liability for possible renewals of property insurance contracts with no guaranteed pricing C. Liability for reinsurance recoverables D. Liability for level premium renewable term life insurance

D. Liability for level premium renewable term life insurance Level-premium insurance is term life insurance for which the premiums are guaranteed to remain the same throughout the contract, while the amount of coverage provided increases. As a result, the coverage can be advantageous over time as a policyholder keeps paying the same amount but has access to increased benefit coverage as the policy matures.

In terms of insurance to value principles applying to liability insurance policies, which one of the following statements is true? A. Insurers generally seek insurance to value for liability policies. B. It is not important for insureds to estimate the potential severity of their liability loss exposures because insurers do not seek insurance to value for liability policies. C. The law generally limits the dollar amount of damages that a court can award to an injured party, allowing insurers to determine the maximum possible loss for most liability loss exposures. D. Liability insurers seek to use insurance rates that are adequate for whatever "layer" of coverage they are insuring.

D. Liability insurers seek to use insurance rates that are adequate for whatever "layer" of coverage they are insuring.

Which one of the following focuses on the minimum building design, construction, operation, and maintenance requirements necessary to assure occupants of a safe exit from the burning portion of a building? A. Building code B. Environmental security C. Workers compensation D. Life safety

D. Life safety

Most property insurance policies provide coverage for direct physical loss only. Which one of the following types of indirect loss is covered by some property policies but only when triggered by a direct physical loss to the property? A. Investment loss B. Loss of market C. Diminished value D. Loss of use

D. Loss of use

Which one of the following risk control techniques is primarily used to reduce the frequency of losses, although it may also mitigate loss severity? A. Separation B. Duplication C. Diversification D. Loss prevention

D. Loss prevention

Which one of the following is the goal of enterprise-wide risk management (ERM)? A. Reduce risk management costs B. Decentralize control of business decisions C. Coordinate loss reduction efforts D. Maximize the organization's value

D. Maximize the organization's value

Which one of the following causes of loss is covered under the other than collision (OTC) section of the Personal Auto Policy (PAP)? A. Hitting a tree B. Overturn from the driver losing control C. Hitting another car D. Missiles or falling objects

D. Missiles or falling objects

Which one of the following has load-bearing walls and columns of masonry or reinforced concrete construction and has a fire-resistance rating of one to two hours? A. Joisted masonry construction B. Masonry noncombustible construction C. Fire-resistive construction D. Modified fire-resistive construction

D. Modified fire-resistive construction

Driving carelessly or failing to lock an unattended building are examples of A. Moral hazard. B. Physical hazard. C. Legal hazard. D. Morale hazard.

D. Morale hazard.

Which one of the following statements is correct with respect to risk transfer measures? A. The majority of risk transfer measures are pure transfers. B. Risk transfer measures shift the transferor's legal responsibility for paying a loss to the transferee. C. The timing of cash flows is usually improved with the use of risk transfer measures. D. Most risk transfer measures limit the potential loss amounts being transferred.

D. Most risk transfer measures limit the potential loss amounts being transferred.

Which one of the following describes a covered auto in the Personal Auto Policy (PAP) definitions? A. Delivery van B. Company car C. Trailer rented by the insured D. Newly purchased pickup truck

D. Newly purchased pickup truck

Underwriters use several measures to determine potential loss severity. One measure, amount subject, varies with the type of construction used in the building. In one class of construction, exterior walls, floor, and roof of a building are constructed and supported by metal, gypsum, and other material that will not catch fire. This type of construction is known as A. Fire resistive construction. B. Frame construction. C. Masonry noncombustible construction. D. Noncombustible construction.

D. Noncombustible construction.

The Definitions section of the Personal Auto Policy (PAP) defines several words and phrases. Which one of the following words is used in connection with Part B—Medical Payments Coverage and Part C—Uninsured Motorists Coverage, clarifying the coverages provided? A. Trailer B. Property damage C. Leased Vehicles D. Occupying

D. Occupying

Which one of the following statements is correct with respect to Property Not Covered under the Building and Personal Property Coverage Form (BPP)? A. By endorsement, insurance can be made available for any of the items listed in the Property Not Covered section. B. Almost all of the items listed in the Property Not Covered section are considered to be uninsurable. C. ISO manual rules prohibit removing the exclusion of many of the items specified under Property Not Covered. D. Only contraband or property in the course of illegal transportation or trade is totally uninsurable by endorsement or in other policies.

D. Only contraband or property in the course of illegal transportation or trade is totally uninsurable by endorsement or in other policies.

The HO-3 policy provides A. Named perils coverage on other structures. B. Named perils coverage on dwellings. C. Open perils coverage on personal property. D. Open perils coverage on dwellings.

D. Open perils coverage on dwellings.

Assume that a jewelry store has theft coverage for customers' jewelry left on their premises for repair. Further assume that homeowners leaving jewelry for repair also have coverage under their homeowners policies for this type of loss. This duplication of coverage is an example of which one of the following other sources of recovery involved in post-loss coverage analysis? A. Subrogation B. Negligent parties C. Other insurance in a similar policy D. Other insurance in a dissimilar policy

D. Other insurance in a dissimilar policy

Under the Building and Personal Property Coverage Form (BPP), which one of the following extensions covers loss only by fire, lightning, explosion, riot or civil commotion, and aircraft? A. Property Off-Premises B. Newly Acquired or Constructed Property C. Personal Effects and Property of Others D. Outdoor Property

D. Outdoor Property

Which one of the following statements is correct with respect to personal and advertising injury coverage? A. The ISO CGL coverage form must be endorsed to provide personal and advertising injury coverage. B. The advertising injury coverage provided under the ISO CGL coverage form is intended for advertising, telecasting, and broadcasting firms. C. Underwriters usually evaluate this loss exposure closely for all risks. D. Personal injury loss exposures include such things as legal liability arising out of libel, slander, and copyright infringement.

D. Personal injury loss exposures include such things as legal liability arising out of libel, slander, and copyright infringement.

Philip insures his car with a Personal Auto Policy (PAP). Philip's car is damaged when he is involved in an accident that is entirely caused by the driver of another car. The other car is also insured with a PAP. Which one of the following is the most accurate? A. If the other car's insurer pays, the other car's insurer can subrogate against Philip's insurer. B. If Philip's insurer pays, Philip's insurer cannot subrogate against the insurer for the other car. C. Philip cannot collect for this loss from the insurer of the other car. D. Philip can collect for this loss from his owner insurer.

D. Philip can collect for this loss from his owner insurer.

Which one of the following asset accounts on an insurer's balance sheet arises from the delay between policyholders' premium payment to the insurer or its agents and the transmittal of these premiums to the insurer? A. Deferred acquisition costs B. Reinsurance recoverables C. Premium reserves D. Premium balances or premium receivables

D. Premium balances or premium receivables

Based on accounting rules, which one of the following earning approaches may be allowed, as an exception, when the effect is not material to the financial statements? A. Premium deficiency recognition B. Deferred revenue C. Non-pro rata D. Pro rata

D. Pro rata

Daniel has developed a business continuity plan to address the threat of the loss of utility services at his company's large manufacturing plant. The management team has reviewed his plan and agrees that the plan can be quickly read and understood and should be effective in the event of a crisis. Daniel has provided copies of the plan to all relevant parties. Which one of the following should be Daniel's next step? A. Develop a business recovery and restoration plan B. Perform a cash flow analysis C. Locate a backup manufacturing site D. Provide training and periodic rehearsals of the procedures

D. Provide training and periodic rehearsals of the procedures

A good exposure base A. Should never be replaced by another over time because this requires a rating algorithm change. B. Is the only item by which losses may systematically vary. C. Reflects the same direct proportion to the expected loss as does a rating variable. D. Provides little or no opportunity for dishonest disclosure by insureds.

D. Provides little or no opportunity for dishonest disclosure by insureds.

The two major types of pro rata reinsurance are A. Clash cover and catastrophe reinsurance. B. Per risk excess of loss reinsurance and catastrophe reinsurance. C. Proportional reinsurance and non-proportional reinsurance. D. Quota share and surplus share reinsurance.

D. Quota share and surplus share reinsurance.

In pricing insurance, insurers must be fair and consistent, resulting in similar rates for insureds with loss exposures that are roughly similar regarding expected losses and expenses. This describes which one of the following rate regulation standards? A. Rates should not be excessive. B. Rates should be compliant. C. Rates should be adequate. D. Rates should not be unfairly discriminatory.

D. Rates should not be unfairly discriminatory.

The two benefits of risk management affecting individuals, organizations, and society are: it preserves financial resources by reducing expected losses and it A. Increases the attractiveness to investors. B. Improves the allocation of productive resources. C. Increases productivity within the economy and improves overall standard of living. D. Reduces the residual uncertainty associated with risk.

D. Reduces the residual uncertainty associated with risk.

If loss reserves are determined to be deficient, an insurer is most likely to A. Know that the unearned premium reserve is deficient. B. Transfer reserves from the unearned premium reserve to the loss reserves. C. Transfer liabilities from loss reserves to the unearned premium reserve. D. Reevaluate the adequacy of the unearned premium reserve.

D. Reevaluate the adequacy of the unearned premium reserve.

Which one of the following is a stabilizing control that ensures the sustainability of insurance companies and their ability to provide compensation for insureds' losses? A. Competition B. Underwriting cycles C. Market intelligence D. Regulatory controls

D. Regulatory controls

Determining the case outstanding for which one of the following is a fairly straightforward exercise without varying practices among different insurers? A. Claims adjustment expenses B. Salvage C. Subrogation D. Reinsurance recoveries

D. Reinsurance recoveries

Which one of the following tasks is the responsibility of a staff underwriter as opposed to a line underwriter? A. Prepare premium quotations B. Verify policies are issued with appropriate forms and endorsements C. Assist producers and insureds in determining appropriate coverage D. Review and revise rating plans

D. Review and revise rating plans

Which one of the following statements is true regarding risk management efforts on the part of individuals, organizations, and society in general? A. The benefits that risk management efforts provide to individuals and organizations are not felt by society in general. B. Risk management tends to increase the deterrence effect of risk in organizations. C. Organizations tend to exhibit a greater degree of risk aversion than do individuals. D. Risk management makes those who own or run an organization more willing to undertake risky activities.

D. Risk management makes those who own or run an organization more willing to undertake risky activities.

Which two risk control measures are directly aimed at reducing the severity of net income losses? A. Avoidance and diversification B. Diversification and loss reduction C. Avoidance and loss prevention D. Separation and duplication

D. Separation and duplication

One of the primary goals of the claim function is A. Informing producers of court rulings that affect the insurer's loss exposures or pricing. B. Reviewing post-loss evaluations with the underwriting department. C. Supporting the insurer's financial goals. D. Sharing accurate loss information with an insurer's actuarial department.

D. Sharing accurate loss information with an insurer's actuarial department.

Under a Commercial General Liability (CGL) policy, an insured is found to be legally liable to pay medical expenses as well as loss of earnings to a claimant. This describes which one of the following types of damages? A. Punitive damages B. Excess damages C. General damages D. Special damages

D. Special damages

Under the HO-3 policy Section I—Conditions, the Loss Payment condition A. Establishes how the amount to be paid for a property loss will be determined. B. Outlines a method for resolving disagreements between the insured and the insurer. C. Provides that if the insured abandons the property after it is damaged, the insurer need not take over responsibility for it. D. States that the insurer will adjust all losses with the insured or the insured's spouse (unless another person is named in the policy or is legally entitled to receive payment).

D. States that the insurer will adjust all losses with the insured or the insured's spouse (unless another person is named in the policy or is legally entitled to receive payment).

Risk can be classified as subjective or objective. Which one of the following statements is correct with respect to these risk classifications? A. Individuals' subjective perception of risk in a given set of circumstances is typically much higher than the objective risk. B. Risk managers focus on objective risk and attempt to avoid allowing subjective risk to affect their decisions. C. Subjective risk is risk associated with individuals; objective risk is risk associated with objects or things. D. Subjective risk can exist even where objective risk does not.

D. Subjective risk can exist even where objective risk does not.

Which one of the following represents an insurer's right to recover the amount of claim payment from a responsible third party? A. Salvage B. Deductible recovery C. Ceded reinsurance recovery D. Subrogation

D. Subrogation

Which one of the following describes a process that analyzes the rulings from several legal authorities to create a new case law that is applied to a new legal situation? A. Legislation B. Stare decisis C. Precedent D. Synthesis

D. Synthesis

Which one of the following is an endorsement to the Building and Personal Property Coverage Form (BPP) that provides coverage for (1) the value of the undamaged portion of a building that must be demolished, (2) the cost to demolish the building's undamaged portion and remove its debris, and (3) the increased cost to rebuild the property? A. The Increased Cost of Construction endorsement B. The Required Demolition endorsement C. The Cost of Compliance endorsement D. The Ordinance or Law Coverage endorsement

D. The Ordinance or Law Coverage endorsement

Which one of the following is true with regard to the asset-liability approach as an accounting standard for insurance contracts? A. The asset-liability approach is the approach most commonly used by property-casualty insurers. B. Under an asset-liability approach, revenue is recognized when the risk covered by the policy expires. C. Calendar or accident year concepts fit the asset-liability approach better than policy or underwriting year. D. The asset-liability approach does not use the earned premium concept and affects the income statement.

D. The asset-liability approach does not use the earned premium concept and affects the income statement.

Which one of the following is true regarding the term "reserves"? A. Incurred but not enough reported (IBNER) is also referred to as pure IBNR. B. No differentiation can be made between "unpaid claim estimate" and "carried reserve." C. The narrow definition of incurred but not reported claims (IBNR) is the same as "development on known claims." D. The carried reserve for unpaid claims is the amount reported in an internal statement of financial condition.

D. The carried reserve for unpaid claims is the amount reported in an internal statement of financial condition.

Claim representatives are responsible for determining the cause of loss, liability, and the loss amount. Which one of the following statements is correct with respect to this process? A. If there are several causes of loss, the claim representative need only identify one that is covered under the policy. B. Claim payments are not typically subject to sublimits, deductibles, or coinsurance provisions in the policy. C. When an insurer pays a claim to an insured for a loss caused by a negligent third party, the insurer cannot recover from the third party. D. The claim representative reviews all component parts of the policy and applies them to the facts of the case.

D. The claim representative reviews all component parts of the policy and applies them to the facts of the case.

Under the Commercial General Liability (CGL) Coverage Form, the named insured's employees and volunteer workers are insureds for liability claims arising from which one of the following? A. Advertising injury arising out of the employee's or volunteer worker's failure to provide professional healthcare services. B. Bodily injury or personal advertising injury to the named insured. C. Property damage to property owned by the named insured or the named insured's workers. D. The employees' or volunteer workers' duties as such, subject to certain exceptions.

D. The employees' or volunteer workers' duties as such, subject to certain exceptions.

A named insured owns two cars, one covered by a Personal Auto Policy (PAP) and one with no insurance at all. Which one of the following is a correct statement regarding the medical payments coverage provided by the PAP if the insured is injured in a collision while driving the uninsured auto? A. The PAP will provide medical payments coverage for medical care for the injuries because the insured was driving a vehicle other than a covered auto. B. The PAP will provide medical payments coverage for medical care for the injuries under the insuring agreement. C. The exclusion of vehicles owned by or available for family member's regular use applies. D. The exclusion of other vehicles owned by the insured or available for insured's regular use applies.

D. The exclusion of other vehicles owned by the insured or available for insured's regular use applies.

Under the HO-3 policy, if the named insured or his or her spouse should die, A. The policy is automatically canceled. B. The insurer agrees to cover the decedent's entire estate, including property not covered by the policy. C. Any insureds found guilty of manslaughter or murder of the named insured or spouse cannot receive policy benefits. D. The insurer agrees to cover the decedent's legal representative as an insured to the extent that the decedent had an interest in the property covered in the policy.

D. The insurer agrees to cover the decedent's legal representative as an insured to the extent that the decedent had an interest in the property covered in the policy.

Claim representatives begin investigating a claim as soon as it is assigned. Which one of the following statements is correct with respect to investigation? A. The process of claim investigating is generally standardized and claim representatives approach most claims in the same manner. B. Claim representatives typically only conduct prior claim investigations when they suspect an insured of attempting to commit insurance fraud. C. Accident scene investigations are usually ineffective in determining whether the accounts of a loss are plausible or questionable. D. The insurer's claim handling guidelines help determine the type and extent of investigation needed for a satisfactory claim settlement.

D. The insurer's claim handling guidelines help determine the type and extent of investigation needed for a satisfactory claim settlement.

Concerning common ratios involving loss statistics, which one of the following statements is true? A. With frequency, the actuary must be careful not to include claims that closed without a payment. B. Pure premium is calculated by dividing total exposures by the total losses. C. Severity, also known as loss cost or burning cost, must be clearly defined to avoid confusion. D. The most common loss ratio metric is reported loss ratio, or reported losses divided by earned premium.

D. The most common loss ratio metric is reported loss ratio, or reported losses divided by earned premium.

When choosing a deductible for property insurance, the insured must balance the benefits of the premium reduction with A. The morale hazard incentive. B. The loss adjustment expenses. C. The moral hazard incentive. D. The need for insurance protection for large losses.

D. The need for insurance protection for large losses.

Which one of the following statements is true regarding rate regulation in insurance? A. Review of the amount of an insurer's investment income has become less important in the evaluation of an insurer's rates. B. Rates must be based only on past costs because future costs are unknowable. C. Prior-approval rate filings typically require a simple filing with limited actuarial analysis if a proposed rate change is within a specified range. D. The reasonableness of the level of profit associated with a rate is a consideration.

D. The reasonableness of the level of profit associated with a rate is a consideration. Regulators typically require insurers to justify their rates in relation to two questions: 1) are the rates based on realistic and factual estimates of future costs? and 2) is the level of profit associated with the rate reasonable?

Which one of the following statements is true regarding a multivariate or generalized linear model (GLM) approach to increased limits ratemaking? A. This analysis involves multivariate techniques such as loss ratio or pure premium to calculate increased limit factors (ILFs). B. GLMs rarely produce counterintuitive results, allowing actuaries to solely use this approach to guide the selection of ILFs. C. Unlike a univariate approach, GLM assumes that the frequency is the same for all risks. D. The results are influenced by both the limiting of losses and the behavioral differences among insureds at different limits.

D. The results are influenced by both the limiting of losses and the behavioral differences among insureds at different limits.

Which one of the following statements is correct regarding the maintenance of underlying insurance condition of an umbrella liability insurance policy if the underlying insurance is not kept in force? A. The umbrella policy would drop down to cover claims that would otherwise be covered by the underlying policies, subject to a self-insured retention. B. The umbrella policy would drop down to cover claims that would otherwise be covered by the underlying policies. C. The umbrella policy would cover claims that exceed the limits of the underlying policies as if they had been kept in force, subject to a self-insured retention. D. The umbrella policy would cover claims that exceed the limits of the underlying policies as if they had been kept in force.

D. The umbrella policy would cover claims that exceed the limits of the underlying policies as if they had been kept in force.

A property location's probable maximum loss (PML) is A. The amount of insurance carried on the location. B. The loss expected under normal operating conditions with all fire protection services working. C. Calculated excluding the effects of building features that impede the vertical spread of fire. D. The underwriter's estimate of the largest loss likely to occur.

D. The underwriter's estimate of the largest loss likely to occur.

Deficiencies in reserves with regard to expected losses over the unexpired portion of a policy will be reflected in A. The loss reserves. B. Both the loss reserves and the unearned premium reserve. C. The recorded liability. D. The unearned premium reserve.

D. The unearned premium reserve.

Megan is an actuary for Durham Insurance. She has been asked to review the reported claims development triangle for the general liability book in the state of Delaware. Reported Claims Development Triangle Reported Claims ($000) as of (months) Accident Year 12 24 36 48 60 20X1 10,000 15,500 24,000 32,400 46,500 20X2 10,600 16,600 29,000 34,900 20X3 15,900 24,900 44,800 20X4 13,800 22,100 20X5 12,500 Megan has been advised that exposures in Delaware have increased at about 5% per year. Which one of the following observations is correct when comparing the reported claims for accident years (AY) 20X2 and 20X3? A. The reported claims for AY 20X3 are completely developed, while the 20X2 claims are still developing. B. The AY 20X3 reported losses developed at twice the rate of the AY 20X2 losses between 12 and 24 month valuations. C. The increase in reported claims for AY 20X3 is consistent with the cumulative increase in exposures. D. There is a 50% increase in reported claims between AY 20X2 and 20X3 at the 24 month valuation.

D. There is a 50% increase in reported claims between AY 20X2 and 20X3 at the 24 month valuation. [(24,900/16,600) - 1] = (1.50-1.0) = 50%

Which one of the following statements is correct with respect to marketing plans? A. They focus primarily on how a product will be advertised and delivered to potential customers. B. Their principal use is with new products; they are not effective for marketing existing products. C. Their purpose is to analyze customer spending habits and determine how much consumers might be willing to pay for a product. D. They identify target customers and the resources and strategies to be used to create, price, promote, and sell the product.

D. They identify target customers and the resources and strategies to be used to create, price, promote, and sell the product.

Which one of the following might be a reason for a regulatory accounting system to gross up the reported premiums by the amount of credits for large deductible arrangements? A. To avoid the negative impact of falling insurer loss ratios reported to the state B. To offset the negative impact on reported earned premiums C. To discourage the use of large deductible plans by insureds in an effort to avoid state premium taxes D. To avoid a negative impact on smaller insureds under a premium assessment system

D. To avoid a negative impact on smaller insureds under a premium assessment system

The purpose of using classification systems in rating is A. To reduce the amount of regulatory review of rate filings. B. To reduce insurer expenses. C. To spread costs equally over all policyholders. D. To group insureds with the similar expected losses.

D. To group insureds with the similar expected losses.

Tomas has an HO-3 policy covering his home. A neighbor jumped Tomas's fence to use his yard as a shortcut to a store, tripped over a small shovel left on the lawn, and was injured. The neighbor sued Tomas. Tomas's insurer defended and won the lawsuit on the theory that the neighbor was a trespasser to whom no duty was owed by Tomas. The insurer's defense included $20,000 in legal fees. Who is responsible for these fees? A. Tomas is, because liability coverage is not triggered absent a finding of liability. B. The insurer is responsible for the legal fees only if Tomas is not able to pay them. C. Tomas and the insurer share responsibility for the legal fees. D. Tomas's HO-3 insurer is responsible for the legal fees.

D. Tomas's HO-3 insurer is responsible for the legal fees.

Mary is a transportation network driver. The transportation network company (TNC) she drives for provides a commercial policy that begins when a passenger enters Mary's personal auto. Based on this, which one of the following should Mary add to her personal auto policy (PAP)? A. Public or Livery Conveyance Exclusion Endorsement B. Transportation Network Platform Definition Endorsement C. Limited Transportation Network Driver Coverage (No Passenger) Endorsement D. Transportation Network Driver Coverage (No Passenger) endorsement

D. Transportation Network Driver Coverage (No Passenger) endorsement Mary should have the Transportation Network Driver Coverage (No Passenger) endorsement added to her PAP because it will extend her personal auto coverage until a TNC passenger enters her auto. At that point, the TNC commercial coverage will begin.

Under the Legal Action Against Us condition of the Commercial Property Conditions Form, if the insured wishes to bring legal action against the insurer, he or she must do so within which one of the following timeframes? A. Sixty days after the insurer denies coverage for a loss B. One year from the date on which the insured notifies the insurer of his or her intention to sue C. Three years after the insurer's action that has given rise to the suit D. Two years after the date on which the direct physical loss occurred

D. Two years after the date on which the direct physical loss occurred

A number of unique factors shape the insurance marketplace. Which one of the following factors is most likely to lead to insurer insolvency, withdrawal from certain geographic markets, and reinsurance shortages? A. Shifts in the underwriting cycle B. Economic inflation C. Regulatory controls D. Unanticipated catastrophic losses

D. Unanticipated catastrophic losses

Which one of the following is the insurer's quality control check for uniform application of the underwriting guidelines and for continuous improvement? A. Market conduct examinations B. Predictive models C. Reinsurance treaty D. Underwriting audits

D. Underwriting audits

Jake is a single twenty-year-old. He drives an older sports car that he fixed up himself. He works as a outside sales representative and uses his car to visit current and prospective customers. Jake has had two at-fault auto accidents in the past three years. He also has five speeding tickets. He lives and works in a large city. Which one of the following ratings would an automobile underwriter in a standard market likely give to this risk? A. Highly Desirable B. Desirable C. Average D. Undesirable

D. Undesirable An automobile underwriter in a standard market would give this risk the rating of undesirable.

Frank is a commercial underwriter. He is evaluating a business income coverage application for Harvest Estate Winery. The winery is located in a large masonry building in a remote area. The applicant and producer have requested $1 million coverage limits and a 125 percent coinsurance clause because they anticipate the location may lengthen the time required to rebuild after a loss. The winery's production equipment and storage facilities are computer-controlled as are the temperature and humidity levels throughout the facility. The winery's vineyards are well-established with mature vines. Harvest occurs during a three to four-week period in September. Frank has been advised by the producer that the winery has neither a disaster recovery plan nor a business continuity plan in place. Which one of the following ratings would Frank likely give this risk? A. Highly desirable B. Desirable C. Average D. Undesirable

D. Undesirable No disaster recovery plan nor a business continuity plan in place

The Public or Livery Conveyance Exclusion Endorsement is designed to be attached to all personal auto policies (PAPs) A. And applies to only Part A—Liability Coverage. B. In combination with the Transportation Network Driver Coverage (No Passenger) Endorsement. C. With insureds who are drivers for a transportation network company (TNC) but not to PAPs with insureds who are not TNC drivers. D. Unless one of the Insurance Services Office, Inc. (ISO) transportation network driver endorsements is attached.

D. Unless one of the Insurance Services Office, Inc. (ISO) transportation network driver endorsements is attached.

Which one of the following is one of the covered causes of loss in the commercial property policy Causes of Loss—Basic form? A. Falling objects B. Water damage C. Weight of ice D. Vandalism

D. Vandalism

Which one of the following types of reinsurance treaties has the advantage of enabling a primary insurer to retain a larger proportion of the small loss exposures that are within its financial capacity to absorb, while maintaining a safer and smaller retention on larger loss exposures? A. Surplus share B. Excess of loss C. Pro rata reinsurance D. Variable quota share

D. Variable quota share

The Subrogation condition in the HO-3 policy allows the insured to waive all rights to recover against any person provided the A. Waiver is in writing and made after a loss. B. Insured acts in its best interests. C. Insured acts in good faith. D. Waiver is in writing and made before a loss.

D. Waiver is in writing and made before a loss.

The asset-liability approach may be used as a new accounting standard for insurance contracts, rather than the deferral-matching approach. Under the asset-liability approach, revenue is recognized A. As coverage is provided for underlying insurance events. B. When the premium is due, regardless of when the premium is received. C. When the risk covered by the policy expires. D. When the insurer gains control of the asset resulting from the revenue.

D. When the insurer gains control of the asset resulting from the revenue.

Under Coverage C—Personal Property of the homeowners policy, which one of the following statements is true? A. Theft is included under Coverage C for watercraft, including its furnishings and equipment, away from the residence premises. B. Loss caused by smoke from agricultural smudging or industrial operations is covered under Coverage C. C. Theft from a building under construction and theft of construction materials are covered under Coverage C. D. Windstorm or hail damage to personal property inside a residence is not covered unless the building is first damaged.

D. Windstorm or hail damage to personal property inside a residence is not covered unless the building is first damaged.

Generally anyone has an insurable interest in property who A. Has purchased and maintained insurance coverage on that property. B. Makes regular use of that property. C. Has expressed an intent in writing of using the property. D. Would be financially harmed by the destruction of that property.

D. Would be financially harmed by the destruction of that property.

An owner of a car insured with a Personal Auto Policy (PAP) for which an insured selected and paid a premium for medical payments coverage A. Would be eligible for medical payments under the PAP if injured while occupying a motorcycle on the insured's own property. B. Would be eligible for medical payments under the PAP if injured while occupying a motorcycle on a public highway. C. Would not be eligible for medical payments under the PAP if injured while driving a motorcycle but would be eligible for such coverage while riding as a passenger on a motorcycle. D. Would not be eligible for medical payments under the PAP if injured while occupying a motorcycle on a public highway.

D. Would not be eligible for medical payments under the PAP if injured while occupying a motorcycle on a public highway.

International Toys (IT) manufactures toys in South Carolina and sells them to stores around the world. A customer in Europe is injured when one of the toys malfunctions and severs the customer's hand. The customer files suit in the United States. If IT is found liable, does its Commercial General Liability (CGL) Coverage Form cover the customer's claim? A. No, because Europe is not within the coverage territory B. No, because products and completed operations liability coverage is not included in the CGL Coverage Form C. Yes, because it is an expected injury D. Yes, because the toys were manufactured in the United States

D. Yes, because the toys were manufactured in the United States