CAS Loss Reserving and Ratemaking Fundamentals Flashcards
6 cards from real CAS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 CAS Loss Reserving and Ratemaking Fundamentals flashcards as text
What is the fundamental insurance pricing equation?
Answer: Premium = Losses + LAE + Underwriting Expenses + Profit
The fundamental insurance equation requires premium to cover losses, loss adjustment expenses (LAE), underwriting expenses, and a provision for profit.
How is the loss ratio calculated?
Answer: Losses and LAE divided by earned premium
The loss ratio is incurred losses (and often LAE) divided by earned premium, expressing claims costs as a percentage of premium earned.
What is the purpose of trend factors in ratemaking?
Answer: To adjust historical losses to current and future cost levels
Trend factors project historical loss experience to expected future levels, accounting for cost inflation, social trends, and changes in the insured population.
What does the credibility-weighted premium formula express?
Answer: P = Z × Experience Rate + (1−Z) × Manual Rate
The credibility formula blends the insured's own experience rate (weighted by Z) with the manual class rate (weighted by 1−Z), where Z reflects statistical credibility.
The paid loss development method is most reliable for which type of insurance lines?
Answer: Short-tail lines where claims are reported and paid quickly
Paid development is most reliable for short-tail lines (e.g., auto physical damage) because paid losses converge quickly to ultimate without long settlement delays.
What does an expense ratio measure?
Answer: Underwriting expenses divided by written or earned premium
The expense ratio measures underwriting expenses (commissions, administrative costs, taxes) as a percentage of written or earned premium.