Chapter 4

Question 1

Underwriting

Answer 1

The selection (acceptance or rejection) and pricing of applicants for insurance

Question 2

Field Underwriting

Answer 2

The initial screening of applicants for insurance performed by the agent or broker

Question 3

Reinsurance

Answer 3

An arrangement in which an insurance company transfers to another insurance company some or all of the risks it has taken on by writing primary insurance. With reinsurance, the primary insurer or ceding company that issues the policy transfers all or part of the risk to another insurer, the reinsurer.

Question 4

Treaty (automatic) Reinsurance

Answer 4

Reinsurance that is obligatory for the original or primary insurer and the reinsurer with respect to every loss exposure covered by the treaty or agreement

Question 5

Facultative Reinsurance

Answer 5

Reinsurance that is optional for both the primary insurer and the reinsurer

Question 6

Independent Adjuster

Answer 6

A claims adjuster or claims adjusting firm that is not an employee of an insurance company

Question 7

Public Adjuster

Answer 7

A person who represents a claimant for a fee in negotiating the settlement of a claim against an insurance company

Question 8

Rate Making

Answer 8

The process of determining the price to be charged for insurance. it involves the determination of future loss costs and adding the necessary margins for expenses and profit

Question 9

Rate

Answer 9

The price charged for each unit of insurance coverage

Question 10

Premium

Answer 10

The price charged for a period of coverage provided by an insurance policy and found by multiplying the rate by the number of units of coverage

Question 11

Pure (net) Rate

Answer 11

That portion of an insurance rate that is designed to cover future loss costs

Question 12

Loading

Answer 12

That portion of an insurance rate or premium that covers the insurer’s expected operating expenses and provides a margin for profits and contingencies

Question 13

Gross Rate

Answer 13

An insurance rate that includes loading for profits and contingencies as well as a provision for expected future loss costs

Question 14

Advisory Organization

Answer 14

An organization that assists insurance companies in such areas as gathering and analyzing statistical information for rate-making purposes and drafting recommended policy language

Question 15

Class Rates

Answer 15

An average price per unit of insurance that applies to a category or classification of similar insureds

Question 16

Specific Rate

Answer 16

Property rates for a particular building developed by applying a schedule that measures the relative quantity of fire hazard to the particular loss exposure

Question 17

Net Single Premium

Answer 17

In life insurance, the amount needed today for all insureds in a classification, together with future investment earnings, to pay all claims within that class of insureds

Question 18

Net Level Annual Premium

Answer 18

In life insurance, the actuarial spreading of the net single premium on a level basis over a policy’s premium-paying period

Question 19

Loss Ratio

Answer 19

Most commonly, the ratio of incurred losses and loss adjustment expenses to premiums earned.