CIC INSURANCE COMPANY
OPERATIONS PRACTICE
TEST Question 1: An insurer's executive management team has adopted a �ve-year objective to become the leading writer of small commercial accounts in three neighboring states. Which action is most clearly part of a departmental tactical plan rather than the strategic plan itself?
Choices:
1) De�ning the company's long-term market position 2) Setting the organization's overall risk appetite 3) Creating a 12-month underwriting rollout with sta�ng milestones and production targets 4) Adopting the company's mission statement Correct Answer: Creating a 12-month underwriting rollout with sta�ng milestones and production targets Explanation: A tactical plan explains how a department will carry out the broader strategy through shorter-term actions, responsibilities, milestones, and measurable targets.Page 1
Question 2: Which statement best distinguishes a mutual insurance company from a stock insurance company?
Choices:
1) A mutual insurer is owned by its policyholders, while a stock insurer is owned by shareholders 2) A mutual insurer cannot earn underwriting pro�t, while a stock insurer can 3) A mutual insurer is exempt from solvency regulation, while a stock insurer is regulated 4) A mutual insurer may write only personal lines, while a stock insurer may write any line Correct Answer: A mutual insurer is owned by its policyholders, while a stock insurer is owned by shareholders Explanation: A mutual insurer is owned by its policyholders, whereas a stock insurer is owned by shareholders who provide equity capital and expect a return on their investment.Question 3: A carrier states that it will accept moderate volatility in homeowners results but will not expose more than a speci�ed percentage of surplus to a modeled catastrophe. What concept is the carrier primarily de�ning?
Choices:
1) Risk appetite and risk tolerance 2) Loss development 3) Claims severity trending 4) Market conduct
Correct Answer: Risk appetite and risk tolerance
Explanation: Risk appetite describes the amount and type of risk a company is willing to assume, while risk tolerance establishes boundaries or limits around that appetite.Page 2
Question 4: Why does statutory accounting generally treat insurer �nancial condition more conservatively than GAAP accounting?
Choices:
1) It is designed primarily to maximize reported earnings for investors 2) It emphasizes solvency and the protection of policyholders 3) It eliminates the need to establish loss reserves 4) It permits insurers to recognize all assets at market value without restriction
Correct Answer: It emphasizes solvency and the protection of policyholders
Explanation: Statutory accounting is oriented toward insurer solvency and policyholder protection, so it emphasizes liquidity and conservative recognition of assets and liabilities.Question 5: An insurer knows that some losses have already occurred but have not yet been reported by policyholders. Which reserve category is intended to recognize this obligation?
Choices:
1) Unearned premium reserve 2) Incurred but not reported reserve 3) Contingency commission reserve 4) Policy acquisition reserve
Correct Answer: Incurred but not reported reserve
Explanation: IBNR reserves recognize losses that have occurred but have not yet been reported to the insurer, helping the company estimate its ultimate claim liabilities.Page 3