ACE Risk Assessment & Underwriting 3

Question 1

Which ratio do underwriters use to measure the percentage of premium consumed by losses and loss adjustment expenses?

Accepted Answer

Loss ratio

Answer

The loss ratio equals incurred losses plus LAE divided by earned premium, indicating how much of premium pays for claims.

Question 2

Under experience rating, a risk with actual losses lower than expected losses will receive which modification?

Accepted Answer

A credit modification reducing the premium

Answer

Favorable loss experience relative to expected losses results in a credit mod, rewarding the insured with lower premium.

Question 3

Which ACORD form captures inland marine underwriting information for a commercial floater?

Accepted Answer

ACORD 137

Answer

ACORD 137 is the Inland Marine Application used to submit floater and commercial inland marine risks to underwriters.

Question 4

A facultative reinsurance arrangement differs from treaty reinsurance primarily because it involves which characteristic?

Accepted Answer

Individual underwriting of each risk by the reinsurer

Answer

Facultative reinsurance requires the reinsurer to individually evaluate and accept or reject each risk submitted.

Question 5

When an underwriter evaluates 'replacement cost value' for a commercial building, what key principle guides this assessment?

Accepted Answer

The cost to rebuild the structure with like kind and quality materials

Answer

Replacement cost value reflects the expense to reconstruct the building at current labor and material prices without deducting depreciation.

(ACE) ACORD Certified Expert Practice Test