CPCU 540 Practice Questions - CPCU 540 Contributing to Insurer Financial Performance Exam - CPCU 540 Practice Questions - CPCU 540 Contributing to Insurer Financial Performance Exam

Question 1

An insurer owns office furniture and an overdue agents' balance more than 90 days old. Under statutory accounting principles (SAP), how are these items most likely treated on the balance sheet?

Both are treated as nonadmitted assets and excluded from surplus Both are reported as admitted assets at full value Office furniture is admitted; the overdue agents' balance is nonadmitted The overdue agents' balance is admitted; office furniture is nonadmitted

Correct Answer:

Both are treated as nonadmitted assets and excluded from surplus

Question 2

Which statement best describes the fundamental difference in purpose between statutory accounting principles (SAP) and U.S. GAAP for insurers?

SAP emphasizes solvency and policyholder protection while GAAP emphasizes going-concern earnings for investors SAP measures going-concern earnings while GAAP measures liquidation value Both frameworks are designed primarily to serve equity investors SAP is required by the SEC while GAAP is required by state regulators

Correct Answer:

SAP emphasizes solvency and policyholder protection while GAAP emphasizes going-concern earnings for investors

Question 3

Under statutory accounting, how are policy acquisition costs (such as agent commissions) treated, and what is the effect on surplus?

They are expensed immediately when the policy is written, reducing surplus up front They are deferred and amortized, smoothing the effect on surplus They are capitalized as a nonadmitted asset with no surplus effect They are recorded as a liability and released over the policy term

Correct Answer:

They are expensed immediately when the policy is written, reducing surplus up front

Question 4

Under U.S. GAAP, an insurer records deferred acquisition costs (DAC). What is the primary accounting rationale for the DAC asset?

To match acquisition expenses against the premium revenue they help generate over the policy term To accelerate expense recognition for tax purposes To remove acquisition costs from the income statement entirely To increase statutory surplus during periods of growth

Correct Answer:

To match acquisition expenses against the premium revenue they help generate over the policy term

Question 5

An auditor notes that an insurer holds bonds classified as not in default. Under statutory accounting for a property-casualty insurer, how are such bonds generally valued on the balance sheet?

Amortized cost Fair (market) value Lower of cost or market Historical purchase price with no adjustment

Correct Answer:

Amortized cost

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About this Exam

Prepare with the CPCU 540 Practice Questions - CPCU 540 Contributing to Insurer Financial Performance Exam practice quiz. This question bank includes 100 questions covering insurer, ratio, surplus, statutory, and million. Use it to review important concepts, identify knowledge gaps, and build confidence for the related exam, course, or assessment.

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CPCU 540 Practice Questions - CPCU 540 Contributing to Insurer Financial Performance Exam

This practice set contains 100 questions from the matching question bank and focuses on insurer, ratio, surplus, statutory, and million. Work through each question carefully, review the provided solutions, and revisit topics that need more study before your next attempt.

This is an independent study resource intended for practice and review; it is not an official examination or an endorsement by any organization named in the title.

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CPCU 540 Practice Questions - CPCU 540 Contributing to Insurer Financial Performance Exam

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