AU 300 - Strengthening Commercial Underwriting Decision-Making
AU 300 tests whether you can turn account information into a defensible decision: accept, decline, or refer, and on what terms and price. The exam rewards a documented process over instinct.
The decision cycle
Underwriting is a sequence: define the target risk from the appetite statement, gather information (application, loss runs, inspection, financials, motor vehicle records), identify hazards, evaluate severity and frequency, then set terms, price and retention. Each step must be able to survive a file review by someone who was not there.
Rules that carry marks
- Authority is not judgment. Anything outside your letter of authority is a referral, and the referral must state the specific concern, not "please review."
- Separate frequency from severity, and trend from random fluctuation. A small account with one claim has low credibility.
- Work all four hazard families: physical, moral (dishonesty, arson-for-profit), morale (indifference, poor housekeeping), and legal (statutory or tort environment changes).
- Price to the terms actually used. Raising a deductible lowers expected loss, so an unchanged loss ratio against unchanged premium is not an adequate test.
Worked example
A metal fabricator renews at $2.4M premium with a five-year developed loss ratio of 68%. One welding fire of $410,000 supplies 55 points of that ratio; removing it leaves 39%. Do you renew flat?
Reasoning: the fire is a severity event tied to a repeatable hazard (hot work, dust, ignition sources), so it is credible for severity even though frequency is low. Flat renewal leaves the hazard unpriced. Restructure instead: $50,000 property deductible, mandatory hot-work permit program, quarterly loss control visits, sprinkler impairment controls. If the insured refuses, decline.
Traps
Recency bias toward the latest claim; comparing loss ratios built on different deductibles or premium bases; dismissing a large loss as "bad luck"; missing moral-hazard signals such as new ownership, sudden revenue jumps, or financing pressure; making a referral with no documented rationale.