CU Underwriting Pricing and Ratemaking 1

Question 1

Which component of insurance ratemaking represents the expected cost of claims per unit of exposure?

Accepted Answer

Pure premium

Answer

The pure premium (also called loss cost) is the expected claim cost divided by the number of exposure units, forming the foundation of the rate.

Question 2

An underwriter calculates a loss ratio of 72% and an expense ratio of 30%. What is the combined ratio?

Accepted Answer

102%

Answer

The combined ratio equals the loss ratio plus the expense ratio: 72% + 30% = 102%, indicating an underwriting loss.

Question 3

Which ratemaking method calculates rates by dividing incurred losses by earned premiums?

Accepted Answer

Loss ratio method

Answer

The loss ratio method compares actual incurred losses to earned premiums, then adjusts the existing rate to achieve the target loss ratio.

Question 4

What does 'rate adequacy' mean in property and casualty insurance underwriting?

Accepted Answer

Rates are sufficient to cover losses, expenses, and provide a reasonable profit

Answer

Rate adequacy means rates are neither excessive nor inadequate — they must cover anticipated losses, underwriting expenses, and yield a reasonable profit margin.

Question 5

An underwriter uses 'credibility weighting' when calculating a risk's rate. What does this primarily address?

Accepted Answer

How much weight to give the risk's own loss experience versus industry data

Answer

Credibility weighting blends an individual risk's own experience with broader class or industry data based on statistical reliability of the risk's data.

(CU) Certified Underwriter Practice Test

(CU) Certified Underwriter Practice Test

CU Underwriting Pricing and Ratemaking 1