CPCU 520 Practice Exam 2

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

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

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

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

5. Which one of the following types of damages is designed to punish a wrongdoer for a reckless, malicious, or deceitful act?

6. 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?

7. SouthNorth Insurance Company actuaries are analyzing the company’s loss reserves. The loss reserve analysis method being used assumes that future changes in losses will occur similarly as in the past. This method involves compiling experience into a loss development triangle, calculating the age-to-age development factors, and applying factors to experience to make projections. What loss reserve analysis method are the actuaries using?

8. 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?

9. 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?

10. 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:

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

12. 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:

13. 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:

14. 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:

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

16. 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?

17. 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:

18. 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:

19. A review of Woerhle Insurance Company financial statements reveals the following:
  • Incurred Losses - $12,000,000
  • Loss Adjustment Expenses - $1,000,000
  • 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?

20. Ajax Insurance Company has entered into a surplus share reinsurance agreement with GSMO Company. If the line is $50,000 and the amount ceded is $200,000, what percentage of the policy premium and policy losses would Ajax Insurance Company receive?