Free CAS Exam 5 (Basic Ratemaking and Reserving) Classification & Alternative Rating Practice Questions

Classification and alternative rating fall in the Ratemaking section of CAS Exam 5 (45-55% of the exam, CAS). Questions test class plans and territory relativities, deductible and increased limits pricing, coinsurance, commercial lines rating mechanisms such as experience and schedule rating, and interpreting what a fitted predictive model such as a GLM says about the risks being priced.

48 questions 13 easy 16 medium 19 hard 2026 syllabus

Sample Questions

Question 1 Easy
In property-casualty ratemaking, what is the primary reason an insurer refines its risk classification system into more granular classes?
Solution
D is correct. Classification refines premiums so each group pays a rate reflecting its own expected loss cost. If an insurer charges an average rate to a heterogeneous group, lower-risk insureds are overcharged and migrate to competitors that price them accurately, while higher-risk insureds remain. Aligning price with expected cost across classes counters this adverse selection.
Question 2 Medium
A commercial property policy covers a building valued at $1,000,000 and includes an 80% coinsurance clause. The insured carries $600,000 of coverage. A covered partial loss of $200,000 occurs. Applying the coinsurance provision, how much does the insurer pay?
Solution
B is correct. Under a coinsurance clause the loss payment equals the loss multiplied by the ratio of insurance carried to insurance required. The required amount is 80%×$1,000,000=$800,00080\% \times \$1{,}000{,}000 = \$800{,}000. The insured carries $600,000, so the ratio is 600,000/800,000=0.75600{,}000 / 800{,}000 = 0.75. The payment is $200,000×0.75=$150,000\$200{,}000 \times 0.75 = \$150{,}000, which is below both the loss amount and the amount of insurance carried.
Question 3 Hard
A commercial risk has 200 exposure units rated at a base rate of $250 per unit. Its experience produced actual losses of $180,000 against $200,000 of expected losses, and it receives full-formula credibility of Z=0.50Z = 0.50. After experience rating, an additional schedule credit of 10% is applied. What is the risk's standard premium?
Solution
C is correct. Manual premium =200×$250=$50,000= 200 \times \$250 = \$50{,}000. The experience modification is 0.50×180,000200,000+0.50=0.45+0.50=0.950.50 \times \frac{180{,}000}{200{,}000} + 0.50 = 0.45 + 0.50 = 0.95. The 10% schedule credit is a factor of 0.90. Standard premium =$50,000×0.95×0.90=$42,750.= \$50{,}000 \times 0.95 \times 0.90 = \$42{,}750.
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CAS Exam 5 Study Guide (Basic Techniques for Ratemaking and Estimating Claim Liabilities, 2026)

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