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CPCU 520 Practice Exam

CPCU 520 Practice Exam

1. Which one of the following statements is correct regarding the premium auditing process?

2. A rating plan that awards debits and credits on specific categories, such as the care or condition of the premises, to modify the final premium is referred to as:

3. Which one of the following statements is correct regarding the law of bad faith?

4. The main purpose of underwriting is to:

5. Which one of the following statements is correct regarding premium audits?

6. Which one of the following represents one of the roles of an actuary?

7. A SWOT analysis is applied during which stage of the strategic management process?

8. The main goal of the investors in a proprietary insurance company is to:

9. Which one of the following represents the role of the courts in the regulation of insurance policies?

10. Which one of the following insurance consumers is most likely to have highly complex insurance needs?

11. Which one of the following statements is correct regarding approaches to global expansion?

12. Which one of the following statements is correct regarding ratemaking data aggregation methods?

13. Which one of the following statements is correct regarding external constraints that may prevent an insurer from meeting their goals?

14. Which one of the following represents a typical activity of a state insurance commissioner?

15. Which one of the following statements is correct regarding elements of good-faith claim handling?

16. Which one of the following statements is correct regarding security and control in information systems?

17. All of the following represent reasons why increased limits factors in general liability insurance are large, EXCEPT:

18. An insurance company is licensed to do business in its home state of Texas but is not licensed to do business in Oklahoma. With respect to Oklahoma, the insurer is:

19. Which one of the following statements is correct regarding professional reinsurers?

20. Which one of the following statements is correct regarding state guarantee funds?

21. All of the following represent regulatory activities of state insurance departments, EXCEPT:

22. Which one of the following represents a way that staff underwriters monitor the activities of line underwriters?

23. All of the following represent primary reasons insurers are regulated, EXCEPT:

24. Which one of the following statements is correct regarding the alignment of insurer business strategies with information technology (IT) strategies?

25. Which one of the following statements is correct regarding risk control?

26. Which one of the following statements is correct regarding the importance of premium audits for insurance rates?

27. A distinction between line underwriters and staff underwriters is that line underwriters implement the steps of the underwriting process, while staff underwriters:

28. Which one of the following statements is correct regarding an insurer’s investment income?

29. Which one of the following situations may cause a risk control representative to believe that a moral hazard exists?

30. An important way to track and measure the success of an information technology (IT) project is to use metrics to evaluate the efficiency and effectiveness of the business process it is intended to improve. A standard IT metric that can work well for any organization is:

31. Which one of the following statements is correct regarding finite risk reinsurance?

32. The Five Forces Model, developed by professor Michael E. Porter, deals with the external environment. All of the following represent forces in the Five Forces Model, EXCEPT:

33. Before accepting an applicant, a line underwriter must determine whether he or she has the necessary underwriting authority to make the decision. Underwriting authority typically is based on:

34. All of the following are factors affecting reinsurance limit selection, EXCEPT:

35. Which one of the following statements is correct regarding the users of claim information?

36. Which one of the following statements is correct regarding constraints in establishing underwriting policy?

37. Reinsurance performs which of the principal functions for primary insurers?

38. The satisfactory delivery of the products and services that result from the product development activity is referred to as:

39. The hit ratio represents the ratio of:

40. The territorial limits of a Personal Auto Policy (PAP) include all of the following territories, EXCEPT:

41. Insurer size is an important determinant of reinsurance needs. Generally, small primary insurers need:

42. Which one of the following represents a type of organizational strategy in which managers develop strategies to support the corporate-level strategy?

43. Premium auditing contributes most directly to which one of the following insurer functions?

44. To attract customers, an insurer must provide the products and services those customers request. The insurer goal of meeting customers’ needs often conflicts with which of the following goals?

45. Although some insurance commissioners are elected, most insurance commissioners are appointed. Which one of the following represents a reason cited by proponents of an appointing system?

46. Which one of the following represents an underwriting activity performed by a line underwriter?

47. Which one of the following statements is correct regarding risk control supporting functions?

48. Which one of the following represents a technology scheme in which a person targets a company by obtaining email addresses of employees and sends an email to each employee persuading them to open a harmful link?

49. All of the following represent reasons that premium audits occur, EXCEPT:

50. Under a SWOT analysis, which one of the following would represent a strength for an insurance company?

51. Claim audits typically evaluate both quantitative and qualitative factors. Which one of the following represents a qualitative factor?

52. ABC Insurance Company has been consistently meeting its sales goals for the past five year, however, the company has lagged behind in its reserves. Customer satisfaction surveys have indicated that the company has kept pace with the needs of existing customers and has maintained a strong brand name. The company also expanded into two new states last year. Which one of the following should be the company’s main focus if they were to conduct a SWOT analysis?

53. Patrick is the new manager of the Claims Division of a regional insurance company. At a recent convention, he learned about an easy-to-use workflow system with networking capabilities and analysis tools. Patrick believes the system will help cut down on instances of fraud and theft, but he is not certain that the system is compatible with his company’s current operating system. The best action for Patrick at this time is to:

54. Stacy is hoping to insure her home, the contents of her home, and other covered property for $300,000. The value being insured by Stacy is the:

55. The table below reflects auto liability losses over a three-year period for Mina’s Insurance Company.?

Year               Paid Losses                  Loss Reserves                             Incurred Losses

20x1               $20,000,000                  $0                                                 $20,000,000
20x2               $15,000,000                  $5,000,000                                $20,000,000
20x3               $5,000,000                    $15,000,000                              $20,000,000
Total              $40,000,000                  $20,000,000                             $60,000,000

Which one of the following statements is correct, assuming Mina’s Insurance Company insured 200,000 cars each year for the three-year period?

56. Ron is an underwriter for ABC Insurance Company. As part of his job, he periodically reviews financial reports to monitor premium and loss data, and to discover potential new loss exposures that may require a premium change. Review of budgets and financial reports represents what type of information need for Ron?

57. Stan is an insurance agent who is an employee of Farmco Insurance Company. Farmco compensates Stan primarily through payment of a salary. Stan does not have any ownership rights of policy expirations, and Stan can only sell insurance written by Farmco. What type of marketing system is Stan operating under?

58. Rob’s Insurance Company (RIC) is a small, regional personal lines insurer. The company has grown substantially over the past three years. The senior management team would like to write additional homeowners coverage, but would like to transfer all losses exceeding $100,000 per policy to a reinsurer. Which one of the following types of reinsurance will be most effective in satisfying management’s goals?

59. SouthNorth Insurance Company actuaries are analyzing the company’s loss reserves. The loss reserve analysis method being used accepts the loss experience to date but assumes that future results are independent of the current experience. The ultimate projection from this method is the sum of actual results to date plus expected future results. What loss reserve analysis method are the actuaries using?

60. Super Insurers submitted a new homeowners policy with the state insurance department. The policy includes several new policy provisions that differ from provisions in their existing homeowners policy. Several months have passed since the policy was submitted, but Super has not heard back from the state insurance department. Which one of the following statements is correct regarding this scenario?

61. A review of the financial statements for Allrite Insurance revealed the following:

Year        Incurred Losses & LAE     Earned Premium    Combined Ratio     Operating Ratio
Year 1     $450,000                             $600,000                 106%                         91%
Year 2    $600,000                             $800,000                 109%                         94%
Year 3    $750,000                              $1,000,000              112%                          97%

Which one of the following statements is correct regarding these amounts?

62. A review of Robbins Insurance Company financial statements reveals the following:

Incurred Losses - $16,000,000
Earned Premiums - $25,000,000
Incurred Underwriting Expenses - $7,000,000
Written Premiums - $35,000,000

What is the expense ratio for Robbins Insurance Company?

63. Ricky works as an agent for Easy Insurers. Ricky was meeting with Sal, a potential customer, about purchasing an HO-3 homeowners’ insurance policy. Ricky told Sal that the policy covered damage caused by flood, even though Ricky knew the policy did not cover such damage. Sal purchased the policy. Ricky may be penalized for:

64. Management of ABC Insurance Company has established aggressive sales goals for the next five years. To help achieve their goals, they would like to partner with someone who has an established customer base, has a predisposition to product cross-selling, and is strong in processing transactions. ABC Insurance Company should partner with a(n):

65. Diamond Insurance Company offers tailored insurance coverages to specific niche markets. Because of this specialization, Diamond charges a slightly higher premium than the competition. Which one of the below strategies does Diamond Insurance Company follow?

66. John is a subscriber in a cooperative insurer. The insurer was formed as an unincorporated association and is managed by an attorney-in-fact. John and the other subscribers have agreed to insure each other and share in profits and losses in proportion to the amount of insurance purchased. John has subscribed to a:

67. Jaxson Insurance Company sells fire insurance in Texas. They charge an average rate to all insureds owning a wood-frame building and a lower rate for insureds owning steel and concrete buildings. This ratemaking practice supports the ideal rate characteristic of:

68. Craig’s Insurance Company sells property and casualty insurance throughout the Midwest. They would like to hire someone to sell insurance, but also to perform other functions such as claim administration, policy issuance, premium collection, and underwriting. Which one of the following should the company hire?

69. Journey Insurance Company recently installed technology that enables them to collaborate with their customers to provide customized pricing and discounts. Instead of rating drivers based on their age, gender, or marital status, the system allows Journey to rate drivers based on their driving habits. Safe drivers are attracted to this type of system, because they are rewarded with lower premiums. Journey is currently utilizing which of the following types of systems?

70. Grayco Insurance Company would like to compete for homeowners policies in an area where the home prices are higher than the amount of insurance Grayco can safely retain. Which of the following strategies would be most appropriate for Grayco?

71. Richardson Insurance is planning to roll out a new line of malpractice insurance designed specifically for brain surgeons. Which type of group marketing system would be most appropriate to sell this new line of insurance?

72. A recent tornado caused extensive damage in Northeast Oklahoma. An insurance company’s staff claim representatives are too busy to handle the large number of claims themselves. To help process the claims, the insurance company should hire:

73. ABC Chemical Company has experienced three on-site accidents in the last 18 months. Due to their unique and risky loss exposure, insurers in their state of domicile have refused to provide insurance coverage to ABC going forward. To obtain coverage, ABC’s best course of action would be to contact a:

74. A review of Woerhle Insurance Company financial statements reveals the following:

Incurred Losses - $13,000,000
Earned Premiums - $26,000,000
Incurred Underwriting Expenses - $10,000,000
Written Premiums - $40,000,000

What is the loss ratio for Woerhle Insurance Company?

75. An insurance company had $500,000,000 of policyholders’ surplus. From a regulatory standpoint, the maximum amount the insurer can retain for a single loss exposure is:


 

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