All of the Following Statements About Class Rating Are True

question 9

Multiple Choice

All of the following statements about class rating are true EXCEPT

• A)Exposures with similar characteristics are placed in the same underwriting class.
• B)The rate charged for each class reflects the average loss experience for that class.
• C)The complexity of class rating makes it inappropriate for personal lines coverages.
• D)It is based on the assumption that future losses to insureds will be determined by the same classification factors currently in use.

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Definitions:

Ordinary Items

Refer to the common income or expenses that affect the net income of a business, as opposed to extraordinary items which are unusual or infrequent.

Partnership Income

The share of profits or losses from a partnership that are allocated to the partners for tax purposes, based on the partnership agreement.

Adjusted Basis

Adjusted Basis is the value of an asset for tax purposes, adjusted for factors like depreciation or improvement costs, used to determine the gain or loss on the asset's sale.

Outside Basis

It refers to the tax basis, or the value of an individual's investment in an entity like a partnership or S corporation, outside of the company's own assets.