CU Risk & Underwriting Principles 3

Question 1

Which reinsurance arrangement allows a ceding insurer to decide case-by-case whether to cede a specific risk?

Accepted Answer

Facultative reinsurance

Answer

Facultative reinsurance is negotiated individually for each risk, giving the ceding insurer discretion on which risks to cede and allowing the reinsurer to accept or reject each submission.

Question 2

In underwriting, 'line of business' primarily refers to:

Accepted Answer

A specific category of insurance coverage such as workers' compensation or commercial auto

Answer

Line of business classifies insurance products by type of coverage (e.g., property, liability, workers' comp), each governed by distinct underwriting rules.

Question 3

What is the significance of the 'combined ratio' in underwriting performance measurement?

Accepted Answer

It combines the loss ratio and expense ratio to indicate underwriting profitability

Answer

A combined ratio below 100% indicates underwriting profit; above 100% indicates an underwriting loss before investment income.

Question 4

Which term describes an insured's legal right to recover from a negligent third party after the insurer has paid a claim?

Accepted Answer

Subrogation

Answer

Subrogation gives the insurer the right to pursue a third party responsible for the loss, preventing the insured from collecting twice.

Question 5

A manufacturing plant that stores large quantities of flammable solvents presents which type of hazard?

Accepted Answer

Physical hazard

Answer

Physical hazards are tangible conditions—such as flammable materials, structural deficiencies, or equipment age—that increase the probability or severity of loss.

(CU) Certified Underwriter Practice Test

(CU) Certified Underwriter Practice Test

CU Risk & Underwriting Principles 3