Chapter 40 Quiz

Twenty questions on assembling, defending, and binding the complete underwriting file: fifteen multiple choice and five short answer. Answers and brief explanations are in the collapsed block at the bottom — try the whole quiz before opening it.

Multiple choice

1. The complete underwriting file is built in the order it is read for one main reason. Which?

  • A. Regulators require a fixed file order by statute
  • B. Inputs must precede the analysis, which must precede the decision, so the decision falls out of the reasoning rather than preceding it
  • C. It is faster to type the decision first
  • D. Brokers will only read files that open with the price

2. Which of the following is the verdict page of the assembled file?

  • A. The statement of values
  • B. The COPE worksheet
  • C. The coverage recommendation memo
  • D. The reinsurance treaty wording

3. A quote differs from bound coverage in that:

  • A. A quote puts the insurer on risk; bound coverage does not
  • B. They are identical once the broker accepts
  • C. A quote is an offer that puts no one on risk; bound coverage is the point at which the promise legally attaches
  • D. Only bound coverage can carry subjectivities

4. The single most common defect in an assembled file, per the chapter, is:

  • A. A wrong arithmetic result in the premium
  • B. A missing rationale for a judgment call (a credit, debit, override, or subjectivity)
  • C. Too many cross-references
  • D. An out-of-date statement of values

5. On the Harbor Steel property line, the experience adjustment is small despite two fires in five years because:

  • A. The losses were fabricated
  • B. Two property fires at one location is low-credibility information about future frequency; it signals severity and a controllable hazard, not a frequency that should overrule the class rate
  • C. Experience rating is illegal on commercial property
  • D. The fires were too large to count

6. The Harbor Steel ACV roof endorsement does which two jobs?

  • A. Raises the premium and lowers the limit only
  • B. Removes the moral-hazard incentive to let a worn roof ride at replacement-cost expense, and converts the roof problem into a 12-month deadline to fix it
  • C. Eliminates the named-windstorm deductible
  • D. Transfers the roof risk to the umbrella

7. The 5% named-windstorm deductible on the \$20M building represents a retention, before the policy pays a wind loss, of approximately:

  • A. \$100,000
  • B. \$500,000
  • C. \$1,000,000
  • D. \$5,000,000

8. In the reinsurance-and-portfolio sign-off, Harbor Steel's property catastrophe exposure is handled by:

  • A. A facultative placement on the \$20M line
  • B. Ceding it to the catastrophe excess-of-loss treaty, leaving the net line within the carrier's retention
  • C. Excluding the wind peril entirely
  • D. A quota-share of the workers' compensation

9. The portfolio sign-off concludes the account "fits appetite if the zone aggregate has room." That conditional matters because:

  • A. The account is too small to model
  • B. A perfectly-priced account can still be the wrong account if it pushes a peril zone past the point where one storm threatens the whole book
  • C. The broker controls the aggregate
  • D. Reinsurance makes accumulation irrelevant

10. The predictive model scored Harbor Steel a 7/10 (decline-leaning). In the file, the model's score is:

  • A. The final price
  • B. Ignored entirely
  • C. Recorded as an input and cross-check, with the override and its reasons documented
  • D. Overridden silently, with no note

11. Which item is a residual risk that survives the Harbor Steel bind?

  • A. The signed roof-replacement contract
  • B. The return-to-work credit
  • C. The pending products-liability claim
  • D. The mandatory telematics

12. A coverage recommendation memo that lists only the reasons to write the account, with no residual-risk line, is best described as:

  • A. A complete underwriting memo
  • B. A sales document, not an underwriting memo
  • C. A binder
  • D. A statement of values

13. Subjectivities in the Harbor Steel bind function as:

  • A. Optional suggestions to the insured
  • B. Conditions precedent that convert identified hazards into tracked conditions with deadlines before/as coverage attaches
  • C. A way to lower the premium
  • D. Reinsurance terms

14. Which would most clearly trigger a re-pricing or non-renewal of Harbor Steel at the next term?

  • A. The roof is replaced on schedule
  • B. The telematics show safe driving
  • C. The roof is not replaced within the 12-month subjectivity window
  • D. The cyber add-on is never used

15. The capstone trap warns specifically against:

  • A. Requiring too many subjectivities
  • B. Underpricing the assembled account to win it at the finish line
  • C. Ceding too much to the cat treaty
  • D. Writing the memo before the analysis

Short answer

16. In one or two sentences, explain why the file must surface and resolve the model-vs-underwriter contradiction rather than bury it, and what an auditor concludes from a file that hides it.

17. State the Harbor Steel capstone disposition in one sentence, including the words "with conditions" and "adequate," and name one residual risk the file records alongside it.

18. A reviewer asks why your property price is above the class average. Give the two-sentence, risk-based, traceable answer the file should contain.

19. Explain what "the file is the underwriter" means (the epigraph), and name two features of a well-assembled file that let it "defend itself without you in the room."

20. Compliance: name the three rooms in which the recommendation memo may be read, and the one rule (about the basis of price and terms) that protects the file in all three.

Answer key (try the quiz first) **1. B** — The file is read inputs → analysis → decision so the conclusion falls out of the reasoning; a file that decides first and reasons after is one an auditor distrusts. (§40.1) **2. C** — The coverage recommendation memo is the verdict page; it states the decision, price, terms, subjectivities, and residual risks. (§40.5) **3. C** — A quote is an offer that puts no one on risk; bound coverage is where the promise legally attaches, subject to terms and conditions precedent. (§40.7) **4. B** — The most common defect is a missing *rationale for a judgment call*; numbers document themselves, judgments do not. (§40.1) **5. B** — Two property fires at one location is low-credibility frequency information (Ch.10); it credibly signals severity and a controllable hazard, so it moves the property price only modestly. (§40.3) **6. B** — The ACV roof endorsement removes the moral-hazard incentive to let a worn roof ride at replacement-cost expense and converts the roof into a 12-month replacement deadline. (§40.4) **7. C** — 5% of \$20M is about \$1,000,000 retained on the building before the policy pays a wind loss. (§40.4; illustrative.) **8. B** — The property catastrophe exposure is ceded to the cat XOL treaty; the net line sits within retention, so no facultative is needed. (§40.6) **9. B** — A perfectly-priced account can still be the wrong account if it pushes a peril zone past the point where one storm threatens the book. (§40.6) **10. C** — The score is an input and cross-check; the override and its documented reasons are in the file. (§40.3, §40.7) **11. C** — The pending products-liability claim is a named residual risk; the others are controls or credits already in place. (§40.7) **12. B** — Without a residual-risk line, the memo is a sales document, not an underwriting memo. (§40.5) **13. B** — Subjectivities are conditions precedent that turn identified hazards into tracked conditions with deadlines. (§40.7) **14. C** — The roof not being replaced within the 12-month window is the clearest re-pricing/non-renewal trigger; the others are favorable. (§40.7) **15. B** — The capstone trap is underpricing the assembled account to win it; the disciplined answer, if the only way to win is to underprice, is to lose it. (§40.3) **16.** The file must state the model's score, what the model could not see, and the override's reasons, because surfacing the conflict shows a *judgment made with the evidence in view*; a file that buries it looks, to an auditor, like an undocumented departure from the model — an audit finding. (§40.1, §40.7) **17.** Harbor Steel is **bound, with conditions, at adequate debit-rated terms**; a recorded residual risk is the aging wet-pipe sprinklers (or the pending products claim, or the cat-and-roof tail until replacement is verified). (§40.7) **18.** "The price is above the class average because the risk is above the class average: the schedule debit reflects the end-of-life roof in a wind zone and the hot-work loss history. Those debits are partly offset by control credits for the hot-work program, the contracted roof replacement, and the infrared scan — every figure traces to a real risk feature." (§40.3) **19.** "The file is the underwriter" means the file must speak for the decision when the underwriter is not present — to a manager, an auditor, a successor, or a court. Two enabling features: (1) every judgment call carries a documented reason; (2) it is ordered inputs → analysis → decision so the conclusion is traceable; (also acceptable: the residual risks and override are disclosed on the face of the memo). (§40.1, epigraph) **20.** The memo may be read in an underwriting audit, a market-conduct examination, and possibly a courtroom. The protecting rule: keep the basis of every price and term *risk-based* (traceable to real risk characteristics, not a protected-class proxy), so the file defends itself in all three rooms. (§40.5)