CPCU 520 Practice Exam 1 Latest Update 2024-

CPCU 520 Practice Exam 1 Latest Update 2024- 2025 Questions and Verified Correct Answers Guaranteed A+ A number of unique factors shape the insurance marketplace. Which one of the following factors is most likely to lead to insurer insolvency, withdrawal from certain geographic markets, and reinsurance shortages?

Select one:

• Unanticipated catastrophic losses
• Economic inflation
• Regulatory controls
• Shifts in the underwriting cycle - CORRECT ANSWER: A. Unanticipated catastrophic

losses

A primary insurer is able to obtain surplus relief through reinsurance by

Select one:

• Obtaining underwriting advice from a reinsurer to increase underwriting profit.
• Receiving ceding commissions to offset policy acquisition expenses.
• Minimizing fluctuations in retained losses from year to year.
• Reducing large line capacity to minimize the ratio of net written premium to

policyholders' surplus. - CORRECT ANSWER: B. Receiving ceding commissions to

offset policy acquisition expenses.

All of the following are challenges that an insurer may face that can hinder a complete

alignment of information technology (IT) and business strategies, EXCEPT:

Select one:

• Changing IT or business metrics
• An overly complex IT infrastructure
• IT professionals assured of their job security
• IT operating as a separate unit - CORRECT ANSWER: C. IT professionals assured

of their job security

All of the following explain when the use of independent adjusters might be

advantageous, EXCEPT:

Select one:

• Insurers may use independent adjusters for specific types of losses, for example,

aircraft accidents, in which specialized expertise is required to settle the claim.

• The insured may retain an independent adjuster after becoming dissatisfied with the

pace of negotiations with the insurer. 1 / 3

• In the case of a catastrophic loss such as a hurricane, an insurer may not have

sufficient staff to manage the claim volume and may temporarily depend upon independent adjusters to handle the excess.

• In some areas it is not economically feasible to set up remote claim offices and in

these areas insurers may depend on independent adjusters to handle their insureds' losses. - CORRECT ANSWER: B. The insured may retain an independent adjuster after becoming dissatisfied with the pace of negotiations with the insurer.

Allied Insurer has a $450,000 xs $150,000 per risk excess of loss reinsurance treaty with Omega Reinsurer. An insured with a limit of $1,000,000 sustains the following

losses:

Loss 1: $125,000 Loss 2: $500,000 Loss 3: $850,000 How much will Omega Reinsurer pay for Loss 1?

Select one:

• $0

B. $31,250

C. $56,250

D. $125,000 - CORRECT ANSWER: A. $0

125,000 is below 150,000 so Omega Reinsurer will pay $0 for Loss 1.

An applicant for commercial property insurance is found unacceptable by an underwriter due to the nature of its operations and the construction of the building it occupies. If the applicant installs an automatic fire-extinguishing sprinkler system, the underwriter will approve the application. This type of underwriting modification is known as

Select one:

• Changing insurance rates, rating plans, or policy limits.
• Requiring risk control measures.
• Using facultative reinsurance.
• Amending the policy terms and conditions. - CORRECT ANSWER: B. Requiring risk

control measures

An earned exposure unit is an exposure unit

Select one:

• For which the insurer has provided a full year of coverage.
• For which a claim has been paid.
• For which the insurer has earned a profit.

D. For which premium has been paid. - CORRECT ANSWER: A. For which the insurer

has provided a full year of coverage.

An important aspect of acknowledging a claimant's bodily injury liability claim, upon first contact, is to try to obtain information on the 2 / 3

Select one:

• Claimant's accident history.
• Claimant's medical history.
• Claimant's sources of additional income.
• Nature and extent of the injury. - CORRECT ANSWER: D. Nature and extent of the

injury.

An insurer that targets large middle-market and national accounts would most likely use which one of the following distribution systems?

Select one:

• Direct
• Broker
• Exclusive agent

D. Internet - CORRECT ANSWER: B. Broker

An underwriter receives a renewal application for a property quote from his producer.The applicant has had a series of small losses in the recent past. The underwriter is debating whether to reject the submission or quote it with a property deductible of $5,000. During which one of the following steps in the underwriting process is the underwriter involved?

Select one:

• Developing underwriting alternatives
• Implementing the underwriting decision
• Evaluating the submission

D. Monitoring underwriting decisions - CORRECT ANSWER: A. Developing

underwriting alternatives

Anna is doing market research on the food industry. She has segmented the market into wholesale and retail operations, and further segmented the wholesale market into meats, fruit and vegetables, dairy, bakery, and non-perishables. Which one of the following would be considered the best example of a niche market?

Select one:

• Wholesale bakery
• Wholesale grocery supplier
• Retail grocery store

D. Food warehousing - CORRECT ANSWER: A. Wholesale bakery

Argot Stock Insurance Company's (Argot) net income is $1,000,000 and its average owners' equity is $18,000,000. Argot's average policyholders' surplus is $20,000,000.Using the GAAP formula, which one of the following is Argot's return on equity?

Select one:

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