ARM402 Practice Exam Questions

The ARM™ 402 exam questions are tough. The ARM™ 402 exam consists of 75 multiple choice questions broken up into two sections, part A and part B. 

Let’s look at an example of a Part A and Part B question. Below we will breakdown two sample questions, including an answer and full explanation, from the ARM 402™ exam. These questions are written by AssociatePI, though we do not offer an ARM 402™ course at this time I do recommend this study material from AB Training Center. This is the study material I use; it includes practice questions much like the question and explanations in this blog.

ARM 402™ Sample Exam Questions – Part A

Which of the following is not an insurable loss exposure characteristic?

  1. Definite and measurable
  2. Loss value exceeds deductible
  3. Independent and noncatastrophic
  4. A large number of similar exposures

 

Answer: B) Loss value exceeds deductible 

A loss exposure is considered insurable if it meets these six ideal characteristics of loss exposure:

  • Pure risk
  • Accidental
  • Definite and measurable
  • Large number of similar exposure units
  • Independent and not catastrophic
  • Affordable

Loss value exceeds deductible is not one of the characteristics of an insurable loss.

 

For more Part A questions, download our free ARM 402 practice exam.

ARM 402™ Sample Exam Questions – Part B

Which of the following exemplifies aggregate excess of loss reinsurance?

  1. The reinsurance agreement includes a $2 million attachment point for each event. The primary insurer pays a liability claim in which two insureds were involved, paying a $1.5 million settlement on behalf of each insured. Since this is one event (one lawsuit), the attachment point applies to the total loss. The primary insurer will pay $2 million for the claim and the reinsurer will pay the remaining $1 million.
  2. The reinsurance agreement includes a $4 million attachment point. The primary insurer incurs 5,000 claims over the year totaling $5 million incurred loss. The primary insurer will pay $4 million for the claims and the reinsurer will pay the remaining $1 million.
  3. The reinsurer agrees to cover the portion of each policy’s limit that exceeds $500,000. A policy’s insurance limit is $750,000, which means the primary insurer will provide $500,000 of coverage, and the reinsurer will provide the remaining $250,000 of coverage.
  4. The reinsurance agreement states that the reinsurer will pay 70% of each policy’s insurance limit. Jim’s policy limit is $1,000,000, which means the primary insurer will provide $300,000 of coverage and the reinsurer will provide the remaining $700,000 of coverage.

 

Answer: B) The reinsurance agreement includes a $4 million attachment point. The primary insurer incurs 5,000 claims over the year totaling $5 million incurred loss. The primary insurer will pay $4 million for the claims and the reinsurer will pay the remaining $1 million.

Under aggregate excess of loss, the reinsurer pays for the total amount of loss (aggregate amount) that exceeds the attachment point during a period of time. This time period is set in the reinsurance agreement; this is typically a one-year period.

The attachment point can be stated as a dollar amount or loss ratio. This is most commonly used for property and liability insurance policies.

For example, a one-year aggregate excess of loss agreement has a $2 million attachment point. The primary insurer incurs 1,000 claims over the year totaling $3.5 million incurred loss. Under an aggregate excess of loss agreement, the primary insurer will pay $2 million for the claims and the reinsurer will pay the remaining $1.5 million.

 

On your exam, you will be given a scenario like the one seen above; it is your job to understand what is being asked of you and how to solve or recommend a solution to the scenario.

For more scenario based questions, download our free ARM 402 practice exam.

Free Practice Exam

Ready to get started studying? We’re here to help (for free). Download our free ARM™ 402 practice exams to get a feel for the type of questions you will see on the exam.

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More Information

For more information about the ARM™ 402 exam, checkout some of our other free resources:

 

Disclaimer

Difficulty rank, importance rank, and the advice provided in this resource are solely the opinion of AssociatePI. This resource is intended to provide you with a general idea of where your focus should be. Each exam administered by The Institutes is different. AssociatePI is not affiliated with The Institutes or involved in the exam writing process. Please be sure to thoroughly study every chapter and every topic of this course.

ARM™ exams are administered by the American Institute for Chartered Property Casualty Underwriters (“The Institutes”). AssociatePI does not administer the actual exams, we are an independent resource of free content, advice, and study material for professional insurance education. This blog is intended for informational purposes only, to inform prospective students of the benefit of the ARM™ designation.

CPCU®, ARM™ and API are trademarks of the American Institute for Chartered Property Casualty Underwriters (“The Institutes”). AssociatePI LLC is not affiliated with, associated with, endorsed by or otherwise supported or recognized by The Institutes in any way. AssociatePI LLC is not authorized by The Institutes to offer courses, practice examinations, or any other resources related to the Institutes’ designations or other programs.

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