Free CAS Exam 5 (Basic Ratemaking and Reserving) Classification & Alternative Rating Practice Questions
Practice 48 free Classification & Alternative Rating questions for CAS Exam 5 (Basic Ratemaking and Reserving).
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 coverage has a full-coverage pure premium of $800. Applying a $500 deductible produces a loss elimination ratio (LER) of 12%. What is the indicated pure premium for the deductible coverage?
Solution
A is correct. A deductible removes the portion of losses captured by the loss elimination ratio. The deductible pure premium equals the full-coverage pure premium multiplied by the retained fraction: $800 $704.
Question 3
Hard
A GLM with a log link is fitted to pure premium. The base pure premium is $500. The fitted coefficients for the risk's levels are: territory 0.2624, vehicle class , and prior-claims 0.4055. What modeled pure premium does the GLM indicate for this risk?
Solution
A is correct. Under a log link the linear predictor sums, then exponentiates, which is equivalent to multiplying the level relativities. The relativities are , , and . The modeled pure premium is $500 $877.50.