Compliance Course
Final Exam Questions (all states except IN and MS)
1. You are making a presentation to a group of retail producers who do not understand
how the surplus lines market should interact with the standard market. Which statement
would you use that best describes the surplus lines market? Lesson One, page 8.
a. The market exists to compete on price with the standard market.
b. The market is a safety valve for risks not written in the standard
market.
c. The market is comprised of admitted insurers.
d. The market is not subject to market cycles.
2. Your retail producer calls you in a panic that a risk manager of an insurance buyer has
been told by a fellow risk manager that the surplus lines market is not financially sound.
Which of the statements below does not accurately describe the financial state of the
surplus lines market? Lesson One, page 12.
a. Surplus lines insurers produced better loss ratios in 2009 than overall
property and casualty insurers.
b. Surplus lines insurers in the aggregate have a higher percentage of A.M.
Best A- or better rated insurers than overall property and casualty insurers.
c. Surplus lines insurers wrote in excess of $33 billion in DWP in 2009.
d. Surplus lines insurers produced worse loss ratios in 2009 than overall
property and casualty insurers.
3. Which one of the following statements is true about the financial results of the surplus
lines market? Lesson One, page 12.
a. In recent years surplus lines insurers have produced lower profit results than
the overall property and casualty industry.
b. When the standard market assumes a greater number of risks the amount of
business available to the surplus lines market increases.
c. Historically the percentage of domestic professional surplus lines insurers,
with A.M. Best ratings of A- or higher, is lower than the overall property and
casualty industry.
d. Since the surplus lines industry is a market of “last resort” it is subject to
the effects of market cycles.
4. Which one of the following is not what the surplus lines market is designed
primarily to provide coverage for? Lesson One, page 13.
a. High-capacity risks
b. Risks needing reduced pricing
c. Distressed risks.
d. Unique risks
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5. As a licensed surplus lines broker you are responsible for legal compliance for the
placement a risk with a non-admitted insurer. Which of the following would you not be
responsible for in the placement process? Lesson Two, page 20.
a. Obtaining an inspection report for the insurer’s underwriting file.
b. Payment of premium tax.
c. Accurate record keeping.
d. Regular tax reporting throughout the year.
6. As a licensed broker who has entered into a broker agreement with the insurer, who do
you legally represent in a risk placement transaction? Lesson Two, page 21.
a. The insurer.
b. The reinsurer.
c. The insurance buyer.
d. The retail agent.
7. You have been hired by a wholesale broker to be a broker. You have previously only
been an underwriter for an insurer. You need to get a surplus lines broker license before
you place business. What is required before you can obtain a surplus lines broker’s
license? Lesson Two, page 23.
a. An affidavit of diligent search for the license.
b. A letter of recommendation from your boss.
c. Two years of experience as an assistant broker.
d. A resident or non-resident producer license.
8. Which of the following is not a common regulatory compliance error made by surplus
lines brokers? Lesson Two, page 24.
a. Lack of review of the financial rating of insurers.
b. Improper premium allocation for multi-state filings.
c. Lack of proper disclosures and/or documentation on the policy declarations
page.
d. Improper completion of documentation and signatures on affidavits.
9. You have been asked to explain to a group of trainees in your brokerage firm the
record keeping process for transaction specific documentation required of surplus lines
brokers. Which if the following statements about record keeping requirements is not
accurate? Lesson Two, page 25.
a. Records are not subject to audit or confirmation by a state.
b. Records are subject to audit or confirmation by a state.
c. The surplus lines broker is directly responsible for proper regulatory
compliance in a state.
d. It is common that records should be kept for a minimum of five years from
inception date of coverage.
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10. You have placed a risk with an insurer that is domiciled in London. Your retail
producer has asked you to provide information about the insurer. Which of the following
accurately describes that insurer? Lesson Three, page 30.
a. The insurer is a domestic insurer.
b. The insurer is an alien insurer.
c. The insurer is a foreign insurer.
d. The insurer is not allowed to write business outside of London.
11. You have placed a risk with an insurer domiciled in OH. The home state of the risk is
in WI. Your retail producer has asked you to provide information about the insurer.
Which of the following accurately describes that insurer? Lesson Three, page 30.
a. The insurer is a foreign insurer.
b. The insurer is a domestic insurer.
c. The insurer is included on an export list for the State of WI.
d. The insurer is included on the NAIC IID approved list.
12. You are asked to provide a training presentation for Insurer Eligibility for your broker
firm. One of the definitions you will discuss is the Eligible Surplus Lines Insurer list in
your state. Which of the following is the best describes this list? Lesson Three, page 30.
a. A list of alien insurers approved by the NAIC.
b. A list of surplus line insurers with capital and surplus above $15 million.
c. A list of non-admitted insurers eligible to write insurance in your state.
d. A list of admitted insurers who have rate, rule and form filings.
13. Within the NAIC Model Law, what is the minimum amount of capital and surplus
requirement for a surplus lines insurer? Lesson Three, page 33.
a. Greater than $5 million or the specific state’s required amount.
b. Greater than $50 million or the specific state’s required amount.
c. The state’s required amount, subject to approval by the NAIC.
d. Greater than $15 million or the specific state’s required amount.
14. You have been asked to speak at a meeting of retail producers. They have asked you
to discuss the diligent search process and why it is needed. Who will you tell them the
diligent search process does not protect? Lesson Four, page 35.
a. The insured.
b. The surplus lines broker.
c. The retail agent.
d. A department of insurance.
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15. You have bound a large Umbrella Policy for a retail producer who could not place
coverage with an admitted insurer. The retail producer has asked who should complete
the required diligent search affidavit. What should you tell this producer? Lesson Four,
page 36.
a. The insured should complete the affidavit and send it to the retail producer.
b. The retail producer should complete the affidavit and send it to you.
c. You will complete the affidavit.
d. Since it is umbrella business, there is no need for an affidavit.
16. You have been asked by your retail agent whether an affidavit is needed for a
coverage that is on your state’s export list. You can answer this by explaining what an
export list does. An export list is best described best by which of the following
statements? Lesson Four, page 37.
a. A list of eligible surplus lines insurers.
b. A list of coverages that the admitted market likes to write.
c. A list of coverages that are exempt from diligent search requirements.
d. A list of alien insurers and their collateral requirements.
17. You are asked to place a risk that has an exposure where you and your broker firm do
not have a surplus lines license. You know a friend who is located in that state and has a
surplus lines license. He has offered to do a courtesy filing for you. Which statement best
describes what you should do? Lesson Four, page 42.
a. Place the risk and ignore the filing in that state.
b. Decline to place the risk since you do not have the surplus lines license.
c. Place the risk and have your friend do the courtesy filing.
d. Ask the insured to sign a waiver to avoid the filing.
18. You have placed a multi-state risk for a retail producer. You have used the phrase
“allocation method” to determine the surplus lines tax owed to each state. Your retail
producer has asked for a better description of this process. Which of the following best
describes the allocation process? Lesson Five, page 47.
a. States use one uniform tax rate and methodology that is applied to the
premium.
b. States prefer that surplus lines taxes are paid to the home state of the insured
to keep it simple.
c. There are differing allocation methods for multiple lines of business and
these can differ by state.
d. If non-admitted insurers are not domiciled in the home state there is no need
to pay a surplus lines tax.
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19. Which of the following is not an accurate statement about tax filings? Lesson Five,
page 49.
a. Tax reports are completed and submitted as a separate report to departments
of insurance.
b. Tax reports must be accompanied by the appropriate tax payment for the
appropriate period.
c. Some states require “zero tax reports” even if not business was written
during the appropriate period.
d. Tax reports are the same as surplus lines filings and are not necessary
since they can be attached to the filing.
20. You are a broker who has received a call from your retail producer regarding the need
for a surplus lines filing in your state where a Stamping Office also exists. Which of the
following statements is accurate? Lesson Five, page 49.
a. Since there is a Stamping Office, there is no need to do a surplus lines filing.
b. Surplus lines filings are not necessary if you have already filed a tax report.
c. Surplus lines filings are sent to the Stamping Office, and in many cases
to a department of insurance, as well, depending upon the state.
d. Surplus lines filing requirements are the same for all states.
21. You had a policy with an uncollectable audit premium that was turned back to the
insurer for collection. The insurer was able to collect the audit premium. As the surplus
lines broker, which of the following statements is true about your responsibility for
payment and reporting of the taxes? Lesson Five, page 50.
a. You are not responsible to pay any surplus lines tax for the premium.
b. Since the insurer collected the premium, the insurer is responsible for
payment of the surplus lines tax.
c. You are responsible for payment of the surplus lines tax for the
collected premium.
d. There is no surplus lines tax due.
22. Which is not a role of Stamping Offices and Surplus Lines Associations? Lesson Six,
pages 54-56.
a. To prevent or stop the use of ineligible insurers in a state.
b. To evaluate eligible insurers regarding financial security.
c. To review compliance activities for a placement to ensure they are proper.
d. To provide surplus lines licenses for broker applicants.
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23. You have received a call from your retail agent asking why there is a disclosure
notice stamped on a policy issued by a non-admitted insurer. Which of the following
statements is the correct response you can provide regarding disclosure notices
referencing state guaranty funds? Lesson six, page 56.
a. In the event the admitted insurer becomes insolvent, the insured’s claim will
not be covered by the state guaranty fund.
b. In the event a non-admitted insurer becomes insolvent, the insured’s
claim will not be covered by the state guaranty fund.
c. The surplus lines broker placing the business does not have a surplus lines
license.
d. The use of the guaranty fund disclosure eliminated the need for any diligent
search affidavits.
24. Which of the following is an accurate statement regarding the Industrial Insured
Exemption? Lesson Seven, page 61.
a. Industrial Insured transactions are subject to premium tax paid by the
insurer.
b. States that have the Industrial Insured Exemption statutes vary in their
requirements as to how a buyer may qualify for the exemption.
c. All insurance buyers can qualify as an Industrial Insured, as long as they
negotiate with a non-admitted insurer within the required timeframe.
d. The exemption occurs when the insurance is purchased directly from an
admitted insured.
25. You are a risk manager of a large hotel chain that is a qualifying insurance buyer and
wish to negotiate the placement of your property catastrophe coverage directly with a
non-admitted insurer. What is this process called? Lesson Seven, page 62.
a. Courtesy Filing
b. Diligent search
c. Completion of the affidavit process
d. Independent Procurement
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