10 exam-style questions with answers and explanations, straight from our 1,030-question bank. Tap an answer to check yourself. When you're ready, take the scored version in the free practice test.
The ARC exam has 50 questions and runs 1 hours 5 minutes.
These 10 free ARC questions are organized by exam domain, so you can see how each part of the Associate in Regulation and Compliance blueprint is tested. Reveal the answer and explanation under each question.
An auto insurer offers coverage at a higher premium because of both the applicant's driving history and information in a consumer report. The driving history carries more weight. The applicant accepts the offer. Does issuing the policy eliminate the insurer's adverse-action notice obligation under the Fair Credit Reporting Act?
Correct answer: B - No; the consumer report contributed to a higher premium, so an adverse-action notice is required.
For a particular commercial line, state law permits a rate to be used immediately after a complete filing; affirmative approval is not required, although the commissioner may later disapprove it. An insurer has filed a supported rate revision and verified that the submission is complete. The launch team asks whether it must wait for an approval letter. Which instruction should compliance give?
Correct answer: A - Release the revised rate; the filing requirement has been met.
A property-casualty insurer's filed risk-based capital report shows total adjusted capital equal to 174% of Authorized Control Level RBC. Its domiciliary state follows the NAIC Risk-Based Capital for Insurers Model Act. All filings are timely, and there are no additional action-level triggers. Which supervisory response corresponds to this capital position?
Correct answer: C - Company Action Level treatment, requiring the insurer to submit an RBC plan.
A business has its principal place of business in State A and buys one nonadmitted property policy covering only warehouses in States B and C. None of the insured risk is in State A. Seventy percent of the contract's taxable premium is allocated to State B and 30% to State C. There are no affiliated co-insureds. Under the Nonadmitted and Reinsurance Reform Act, which state may require payment of premium tax for this placement?
Correct answer: A - State B, because all insured risk lies outside State A and B has the largest premium allocation.
After a covered fire, an insurer and its commercial insured agree that $180,000 is payable for building damage. A separate business-income claim remains disputed. All conditions for the building payment are satisfied, and the jurisdiction requires timely payment of an established, undisputed amount. What should the claims manager authorize?
Correct answer: C - Pay the building amount and continue evaluating the business-income claim.
'The NAIC adopted the model yesterday, so its new producer disclosure is already mandatory here.' An agency owner makes this statement in a state where legislation to enact the provision is still pending and no existing law imposes an equivalent duty. Which distinction resolves the issue?
Correct answer: C - NAIC adoption provides proposed text; the disclosure needs an applicable state legal basis to become mandatory.
Year-end reserve worksheet for one accident year: cumulative paid losses, $6.4 million; outstanding case reserves, $1.6 million; selected reported-loss cumulative development factor, 1.25. No unreported-loss or development provision is booked. Ignoring loss-adjustment expenses, reinsurance, and taxes, which pair gives the required unpaid loss liability and increase to the booked reserve?
Correct answer: D - $3.6 million unpaid liability; increase the booked reserve by $2.0 million.
During a statutory-statement review, an examiner identifies an asset that is validly recognized under GAAP but must be fully nonadmitted under statutory accounting. The insurer still owns the asset; there is no sale, cash payment, or change in liabilities. Compared with the statement before correction, the direct effect is:
Correct answer: B - Lower admitted assets and lower policyholders' surplus, with cash unchanged.
The year-end premium reconciliation shows $96 million in net written premium, a $24 million opening net unearned premium reserve, and a $30 million closing net unearned premium reserve. Premium cash receipts were $92 million, including collections of opening receivables. All figures use the same business scope, and there are no other earning adjustments. What earned premium belongs in the income statement?
Correct answer: B - $90 million, recognizing that more written premium remains unearned at year-end.
One windstorm produces thousands of modest homeowners losses across a coastal portfolio. Almost every individual loss falls below the insurer's per-risk excess-of-loss attachment, yet the event's aggregate cost severely strains earnings. Management wants to keep its ordinary share of premium while protecting against another accumulation of losses from one storm. Which reinsurance proposal fits that objective?
Correct answer: D - Add catastrophe excess-of-loss protection that aggregates covered losses from a defined event.
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