Financial Modeling & Forecasting Flashcards
7 cards from real CIA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Modeling & Forecasting flashcards as text
A Certified Insurance Appraiser is forecasting post-loss inventory values using the gross profit method. If net sales were $500,000, the gross profit margin is 40%, and cost of goods sold is $300,000, what is the estimated ending inventory?
Answer: $0
Estimated COGS using gross profit method = $500,000 × 60% = $300,000; since actual COGS equals estimated COGS, estimated ending inventory equals beginning inventory minus purchases consumed — net zero change if beginning stock equaled purchases.
Which financial model component captures the insurer's ability to pay large unexpected losses without threatening solvency?
Answer: Surplus adequacy / risk-based capital (RBC) model
The risk-based capital (RBC) model measures whether an insurer's surplus is adequate relative to its risk exposures, indicating solvency resilience.
An appraiser is projecting lost profits for a manufacturer after a covered fire. Which of the following is a 'continuing expense' that reduces the net BI loss?
Answer: Payroll for retained employees during the interruption period
Continuing expenses like retained payroll are costs the business still incurs during the interruption and are included in the BI loss calculation, not deducted from it — but they reduce net income loss by being expenses the policy covers, not savings.
In a pro forma financial model for an insurance company, which item appears on the asset side of the balance sheet and is most heavily scrutinized by regulators?
Answer: Investment portfolio quality and duration
Regulators closely scrutinize investment portfolio quality, duration, and credit risk because it represents the primary source of funds backing claim obligations.
When modeling the financial impact of a large property loss using a 'top-down' approach, the appraiser begins with:
Answer: Total pre-loss revenue and applies loss percentages
A top-down approach starts with aggregate financial figures (total revenue or asset value) and applies estimated loss percentages to arrive at total loss amounts.
In insurance loss forecasting, the 'development-to-ultimate' factor converts cumulative paid losses at a given evaluation age to which value?
Answer: The projected total ultimate incurred loss for that accident year
A loss development factor (LDF) or 'tail factor' multiplies cumulative paid losses to project the total ultimate losses expected when all claims are fully settled.
A financial model for a commercial property insurer shows that investment income is projected to decline by 15% due to falling interest rates. What is the MOST direct effect on the insurer's pricing model?
Answer: Premium rates will need to increase to compensate for lower investment returns
Lower investment income reduces the offset to underwriting losses, requiring higher premium rates or improved underwriting results to maintain target profitability.