cpcu 520 ch4 review notes

Question 1

uw function purposes to achieve profit

Answer 1

guarding against adverse selection
ensuring adequate surplus
enforcing uw guidelines

Question 2

line underwriting responsibilities

Answer 2

select insureds
classify and price accts
recommend or provide covg
manage a book of business
support producers & customers
coordinate w/ marketing efforts

Question 3

production underwriter

Answer 3

blended responsibilities of special agents and line underwriters

Question 4

staff underwriting activities

Answer 4

research market
formulate uw policy/philosophy
revise UW guidelines
evaluate loss experience
research and develop coverage forms
review and revise pricing plans
Arrange treaty reinsurance
assist others w/ complex accts
conduct UW audits
participate in industry associations
conduct education/training

Question 5

factors constraining what UW policy can accomplish

Answer 5

financial capacity, regulation, personnel, reinsurance

Question 6

capacity

Answer 6

relationship btwn prem written and size of policyholder surplus (net worth)

Question 7

activities helping to realize maximization of return on equity

Answer 7

setting return thresholds
redirecting focus on target business classes
adjusting uw policy based on juristiction

Question 8

return on equity

Answer 8

measure of insurer profitability, relates net operating gain after taxes as percentage of prior year capital/surplus, stock insurers calcualte both SAP and GAPP, mutual insurers only SAP

Question 9

UW guideline purposes

Answer 9

Provide for structured decisions, ensure uniformity and consistency, syntheseize insights and experience, distinguish btwn routine and non-routine decisions, avoid duplication of efforts, ensure adherence to reinsurance treatires and planned rate levels, support policy prep and compliance, provide basis for predictive models

Question 10

routine decisions

Answer 10

line underwriter clearly has authority to make according to UW guidelines

Question 11

non-routine decisions

Answer 11

subs that fall outside uw’s authority

Question 12

Underwriting policy should support an insurer’s

Answer 12

mission

Question 13

Steps in UW process

Answer 13

Evaluate submission (weigh the need for info, gather the necessary info)
Develop UW alternatives
Select UW alternative
Determine appropriate premium
Implement UW decision
Monitor UW Decision

Question 14

Sources of UW info

Answer 14

Producers (more than any other)
applications
inspection reports
gov't records
financial rating services
loss data

Question 15

Production records

Answer 15

records on producers indicating loss ratio, prem volume, mix of busienss, etc

Question 16

major types of uw modifications

Answer 16

require risk control measures, change rates/rating plans/policy limits, amend policy terms/conditions, use faculative reinsurance

Question 17

consideration before selecting UW alternative

Answer 17

Underwriting authority, supporting business, mix of business, producer relationships, regulatory restrictions

Question 18

steps in implementing UW decisions

Answer 18

Communicate decision
Issue documents
record information

Question 19

Nonfinancial measures indicating insurer profitability

Answer 19

Selection, product or line of business mix, pricing, accomodated accounts, retention ratio, hit/success ratio, service to producers, premium to underwriter

Question 20

retention measurements

Answer 20

policy count, prem volume, or both

Question 21

high hit ratio inicates

Answer 21

competition easing, rates inadequate/lower than others, covg broader than others, uw has skill set for production uw, uw selction criteria deteriorating, good relationship btwn insurer/producer

Question 22

low hit ratio indications

Answer 22

competition increasing, rates higher than others, cog or forms too restrictive, uw does not have skill set for production uw, selection criteria too stringent, service poor, poor relationship btwn insurer/producer

Question 23

policyholder surplus

Answer 23

under SAP, insurer’s total admitted assets minus total liabilities

Question 24

capacity

Answer 24

total amt of busines insurer able to write, based on comparison of written prem to policyholder surplus

Question 25

prem to surplus ratio/capacity ratio

Answer 25

indicates insurer’s financial strength by relating net written prem to policholder surplus

Question 26

return on equity

Answer 26

prof ratio expresed as percentage by div net income by net worth (book value)

Question 27

market conduct exam

Answer 27

analysis of insurer practices in sales/advertising, uw, ratemaking, claim handling

Question 28

info efficiency

Answer 28

balance btwn hazards presented by acct and info needed to uw it

Question 29

a rate class

Answer 29

classes provided by ISO comm lines manual describing operations w/ unique characteristics or for which inadequate statistical experience exists

Question 30

estiamted loss potentials

Answer 30

rate development factors used for operations w/ unique characteristics or for which inadequate statistical exp exists. Multiplied by loss cost multipliers to develop rates

Question 31

unfair trade practices

Answer 31

methods of competition that tend to deprive public of info necessary to make informed decisions

Question 32

combined ratio

Answer 32

profitability ratio used to indicate whether insurer has made uw loss or gain

Question 33

production uw

Answer 33

performing uw functions in insurer office as wella s traveling to visit and maintain rapport w/ agents and clients

Question 34

hit ratio

Answer 34

ratio of ins polcies written to those quoted to applicants for ins