Fundamentals of Actuarial Practice (FAP) Modules and Final Assessment Insurance Practice Questions

1. In a general insurance context, what is the primary purpose of underwriting?

• AA. To process claims
• BB. To invest funds
• CC. To sell policies
• DD. To assess risk

6. What does 'reinsurance' primarily provide for an insurance company?

• AA. Risk transfer
• BB. Policyholder loyalty
• CC. Increased claims
• DD. Investment returns

8. How does the 'principle of mutuality' operate in insurance?

• AA. Allows for premium discounts
• BB. Ensures profitable returns
• CC. Promotes collective risk sharing
• DD. Reduces administrative costs

9. What does the term 'adverse selection' imply in insurance?

• AA. All insured parties pay the same premium
• BB. Risk is evenly distributed
• CC. Customers have similar risks
• DD. High-risk individuals are more likely to purchase insurance