Problems - test Flashcards
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?
$250,000 - Under a $750,000 excess of $250,000 per policy excess of loss reinsurance treaty, the primary insurer would recover the amount in excess of $250,000 on each loss, for a total of $950,000. Under the per occurrence excess of loss reinsurance treaty, the primary insurance would recover $700,000, or the total of all 3 losses of $1,700,000 less the $1,000,000 retention. The difference between them is $250,000.
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?
The PPC of 2 indicates that the public fire service should provide at least adequate public protection from fire loss
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?
100%
Insurer Y is using the pure premium ratemaking method in estimating expenses per exposure unit based on the insurer’s past expenses. Insurer Y knows that incurred losses are $4 million including loss adjustment expenses of $500,000. All other expenses are $1.5 million. The earned-car years used in the calculations are 100,000. Therefore, the expenses per exposure unit are
$15
Antonia and Philip have their home insured with ABC Insurance under a standard homeowners policy. During a storm, a lightning strike resulted in a fire in the home’s kitchen, and the high winds caused a tree to fall on the roof leaving a large hole. Quite a few shingles were blown off the remainder of the roof. The homeowners report the claim to ABC and make emergency repairs to protect the property from further damage. The claim is assigned to Trevor at ABC. Because the home is uninhabitable, Antonia and Philip incur additional living expenses for meals and lodging while the home is being repaired. In investigating the loss, Trevor determines that the roof tiles are worn and deteriorated and that the entire roof should be replaced. In addition, the wiring in the house in not in compliance with the local ordinance and should be upgraded when any significant repair or renovation is done. Using the framework for coverage analysis and activities in the claim handling process, which one of the following best describes how Trevor will determine the dollar amount of this loss?
A. He will include the cost to repair damage caused by fire in the kitchen and the hole in the roof, and will offer to reimburse the cost of emergency repairs and additional living expenses.
Insure-All Insurance Company (Insure-All) is adopting a new strategy for distributing products emphasizing direct and Internet sales over sales through the traditional agency network. It is also successfully experimenting with adjusting straightforward claims over the Internet. Underwriting and policy issuance are being automated through the use of expert systems, and all areas of operation are more efficient as a result. Which one of the following strategies is Insure-All pursuing?
C. A cost leadership strategy
ABC Insurance Company has written premiums of $3,000,000 and earned premiums of $2,750,000. The company’s incurred losses are $1,700,000 and loss adjustment expenses are $225,000. ABC’s incurred underwriting expenses total $750,000. Which one of the following represents ABC’s trade basis combined ratio?
95%
