CU CU Reinsurance and Portfolio Management 2

Question 1

Which metric best measures the overall profitability of an underwriting portfolio before investment income?

Accepted Answer

Combined ratio

Answer

The combined ratio (loss ratio + expense ratio) indicates whether underwriting operations are profitable; a ratio below 100% signals underwriting profit.

Question 2

A high premium-to-surplus ratio in an insurance portfolio indicates:

Accepted Answer

Potential overexposure relative to the insurer's financial strength

Answer

An elevated premium-to-surplus ratio signals that the insurer may be writing more business than its surplus can safely support, increasing insolvency risk.

Question 3

In portfolio underwriting, 'adverse selection' refers to:

Accepted Answer

The tendency for higher-risk applicants to seek insurance more aggressively than lower-risk ones

Answer

Adverse selection occurs when the insured population skews toward higher-risk individuals because low-risk individuals may opt out, distorting expected loss ratios.

Question 4

Which reinsurance structure is most commonly used to protect against catastrophic single-event losses such as hurricanes?

Accepted Answer

Catastrophe excess of loss (Cat XL)

Answer

Cat XL reinsurance is specifically designed to absorb losses from a single catastrophic occurrence that exceeds the cedent's retention.

Question 5

When managing a book of business, 'risk diversification' is valuable because it:

Accepted Answer

Reduces the chance that losses across the portfolio will be highly correlated

Answer

Diversification across geographies, lines, and risk types lowers the probability that many losses occur simultaneously, stabilizing the portfolio's results.

(CU) Certified Underwriter Practice Test

(CU) Certified Underwriter Practice Test

CU CU Reinsurance and Portfolio Management 2