Chapter 38 Quiz
Twenty questions: fifteen multiple choice and five short answer. Answers are in the collapsed block at the bottom — try the whole quiz before opening it.
Multiple choice
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The central difference between an underwriter and an underwriting leader is that the leader's primary product is: - A. A larger number of bound accounts - B. A system that produces good decisions at a scale no one could review individually - C. The lowest possible loss ratio on their personal book - D. Faster turnaround on individual submissions
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The four levers through which an underwriting leader runs the function are: - A. Premium, expenses, profit, and surplus - B. Appetite, authority, audit, and team (profit/combined ratio) - C. Frequency, severity, credibility, and trend - D. Distribution, pricing, claims, and reserving
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A risk-appetite statement is usable when it: - A. Expresses the board's tolerance in broad qualitative terms - B. Is approved by the reinsurer - C. Is translated into boundaries concrete enough for a line underwriter to apply to a live submission - D. Lists only the classes the carrier will decline
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In the four-tier class structure, the tier where most underwriting judgment lives is: - A. Target - B. Accept - C. Restrict - D. Decline
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A letter of authority primarily defines: - A. The reinsurance treaty terms - B. The box inside which a named underwriter may act alone, and the boundary at which they must refer up - C. The policyholder's duties under the contract - D. The commission paid to the producing broker
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When an underwriter binds an account within their letter of authority, the legal effect is that: - A. The coverage is provisional until a manager confirms it - B. The carrier is bound and on the risk, even if the account was a poor choice - C. Only the underwriter, not the carrier, is liable - D. The policy is automatically void
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Under-delegation (setting authority too low) is harmful chiefly because it: - A. Always produces immediate losses - B. Buries seniors in rubber-stamp approvals, slows broker response, and stunts junior development - C. Violates state rate-filing law - D. Increases the reinsurer's retention
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An underwriting audit is best described as: - A. A lagging indicator that confirms the loss ratio after the fact - B. A leading indicator of underwriting quality, reviewing file selection, pricing, documentation, and authority compliance now - C. The regulator's review of policyholder treatment - D. The verification of an individual policy's exposure base
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In an underwriting audit of a book where 5% of accounts hold 50% of the premium, pure random sampling is inadequate because it: - A. Is statistically biased toward small accounts - B. Tells you little about the few large accounts that can actually hurt the book - C. Is prohibited by NAIC model law - D. Costs more than targeted sampling
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A file that is well-selected and well-structured can still score "pass with findings" because the audit also checks:
- A. Whether the account had a loss
- B. Whether the decision is documented and defensible, not just whether it was a good risk
- C. The broker's profitability
- D. The reinsurer's rating
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The most dangerous-looking result in underwriting management is generally:
- A. A shrinking book at a high combined ratio
- B. Rapid premium growth and a low reported combined ratio in the same year
- C. A flat book at a 100% combined ratio
- D. High retention with rising rates
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The reason a leader cannot manage the combined ratio by watching the combined ratio is that:
- A. The figure is confidential
- B. It is a lagging number — this year's result grades decisions made two to three years ago
- C. It excludes investment income
- D. It is set by the actuaries, not underwriting
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"We'll make it up on volume" is dangerous because:
- A. Volume always triggers a reinsurance penalty
- B. Writing more of an underpriced book multiplies the loss, since every new policy sells at the inadequate price
- C. It violates the duty of utmost good faith
- D. It improves the combined ratio too quickly
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When hiring underwriters, the chapter argues a leader should prioritize:
- A. Product knowledge above all, since judgment cannot be developed
- B. The aptitudes that are hard to teach — judgment, honesty, commercial sense, the temperament to say no — over product knowledge that can be taught
- C. The candidate with the most designations
- D. Whoever the producers prefer
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Underwriting governance uses the "three lines of defense" so that:
- A. The reinsurer controls the appetite
- B. The people writing the business are not the only ones judging whether it is sound
- C. Underwriting can avoid actuarial review
- D. The board is removed from appetite decisions
Short answer
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In one or two sentences, explain the difference between a letter of authority and a referral grid, and how the two work together.
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Give one concrete example of a leading indicator of the combined ratio and explain why it leads — why it moves before the reported combined ratio does.
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Explain why a quarterly calibration session does more to enforce an appetite statement than simply re-sending the statement to the team.
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Harbor Steel exceeds the line underwriter's authority. Name the four characteristics that route it upward on the referral grid, and say which decision belongs specifically to the CUO.
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The chapter ties the combined-ratio discipline to the theme that insurance serves a social function. Explain that link in two or three sentences.