CU Commercial Underwriting Practices 5

Question 1

A commercial underwriter reviewing a hotel submission is MOST concerned about which liability exposure unique to hospitality operations?

Accepted Answer

Liquor liability from the hotel bar and special events

Answer

Liquor liability is a significant and often excluded exposure for hotels with bars or banquet facilities, requiring a separate dram shop endorsement or policy.

Question 2

The purpose of an 'expected loss ratio' (ELR) in commercial lines underwriting is to:

Accepted Answer

Serve as the credibility-weighted benchmark loss ratio for experience rating calculations

Answer

The ELR represents the anticipated loss ratio for a class and serves as the stable benchmark when blending actual experience with expected experience in experience rating formulas.

Question 3

Which of the following BEST describes the underwriting concept of 'adverse development' in reserving?

Accepted Answer

Previously established reserves proving insufficient as a claim matures and costs increase

Answer

Adverse development occurs when actual claim costs exceed the reserves initially set, requiring the insurer to strengthen reserves and recognize additional losses.

Question 4

An underwriter is analyzing a technology company's professional liability (E&O) submission. Which factor is MOST critical in evaluating this risk?

Accepted Answer

The nature of services provided and potential downstream financial impact on clients

Answer

For tech E&O, the type of service and the financial harm a software failure or error could cause clients determines severity potential more than any physical factor.

Question 5

Which underwriting action BEST demonstrates the principle of 'risk selection' in commercial lines?

Accepted Answer

Declining or modifying risks whose expected losses exceed acceptable profitability thresholds

Answer

Risk selection is the core underwriting function of choosing which risks to accept, decline, or modify to maintain a profitable, balanced portfolio.

(CU) Certified Underwriter Practice Test

(CU) Certified Underwriter Practice Test

CU Commercial Underwriting Practices 5