ARM™ 402 Practice Exam Questions

In this blog, we will break down two example ARM™ 402 exam questions. These questions are taken directly from our ARM™ 402 Online Course, the questions are designed to mimic the format and feel of the actual exam.

About the ARM™ 402 Exam Questions

The ARM™ 402 exam is a 65-minute virtual exam consisting of 50 multiple-choice questions. Exams are virtual, and non-proctored, meaning you take the exam alone online directly from your computer. All questions on the virtual exam will be application-based scenario questions. These are tricky questions that require you to apply your knowledge to a real-life scenario to choose the appropriate answer (you will not be repeating a definition or concept). You will be given a real-life scenario; your job will be to select the best recommendation to solve the given scenario.

If you have not previously taken an institute’s administered exam, you will be in for quite the surprise. The questions on these ARM™ exams will be much different than what you may be used to on a typical exam that you took in high school or college. These questions require you to fully understand every aspect of the main topics and require you to actually apply the knowledge, rather than just repeating a definition. I cannot stress this importance enough, the content of the ARM™ 402 exam is not difficult, but the format is tricky. You must fully understand a topic, DO NOT simply memorize definitions and think you will be able to pass (trust me, I’ve been there!)

You can download one of our free practice exams to see what these questions look like.

Time constraint

Remember, the ARM™ 402 exam consists of 50 multiple-choice questions and you only have 65 minutes to complete the exam. That means, you only have about 1 minute and 18 seconds per exam question. That’s not a lot of time. You need to memorize all of the content of this exam to be able to quickly read, analyze, and correctly answer each scenario-based question.

ARM™ 402 Sample Exam Questions (First Sample Question)

Better Business Corporation has analyzed its present loss exposures and determined the most prominent loss exposure is the risk that its key manufacturing team, the members of which would be difficult to replace, could be injured using the new manufacturing equipment. What is an appropriate loss-reduction risk-control technique to mitigate this risk?

Implement manufacturing employee training classes.
Purchase insurance.
Install security cameras and monitoring systems to monitor employee usage of these machines.
Avoid using the machines or purchase new machinery.

Answer: A) Implement manufacturing employee training classes.

Implementing employee training classes is a loss-reduction technique. It does not eliminate loss, but it will help to reduce loss. The other answer options available are not examples of loss reduction:

Purchase insurance. (This is risk financing.)
Install security cameras and monitoring systems to monitor employee usage of these machines. (This does not reduce risk.)
Avoid using the machines or purchase new machinery. (This is avoidance, not loss reduction.)

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 application-based questions, download our free ARM ™ 402 practice exam.

ARM™ 402 Sample Exam Questions (Second Sample Question)

Which of the following exemplifies aggregate excess of loss reinsurance?

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.
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.
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.
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.

Download: Free Practice Exam (CPCU® | API™ | ARM™)

More Information

For more information about the ARM™ 402 exam, check out 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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