Free CAS Exam 5 (Basic Ratemaking and Reserving) Overall Rate Level Indications Practice Questions

Overall rate level indications are the center of the Ratemaking section of CAS Exam 5 (45-55% of the exam, CAS). Questions test the pure premium and loss ratio indication methods, fixed versus variable expense provisions, the profit and contingency load, the cost of reinsurance, credibility weighting an indication and defending the complement chosen, and recommending a final rate change against operational, marketing, and regulatory constraints.

117 questions 20 easy 34 medium 63 hard 2026 syllabus

Sample Questions

Question 1 Easy
In a rate indication, which of the following is most appropriately treated as a variable expense that scales with premium?
Solution
C is correct. Variable expenses are those that move roughly in proportion to premium. Premium taxes (like commissions) are assessed as a percentage of premium, so they rise and fall directly with premium volume and are loaded as a percentage-of-premium variable provision in the rate indication.
Question 2 Medium
An insurer is launching a brand-new coverage for which it has never previously charged premium, but it can define a clear exposure base and has industry loss-per-exposure data. Which approach is most appropriate for developing the overall rate level indication?
Solution
C is correct. The pure premium method builds an indicated rate directly from losses and expenses per exposure and does not require any existing premium history. Because the new coverage has never been priced but has a well-defined exposure base and loss-per-exposure data, the pure premium method is the natural choice for producing an indicated rate level.
Question 3 Hard
An actuary develops an indication with the pure premium method. Trended, developed losses and LAE total $4,200,000 over 10,000 earned exposures. Fixed expenses are $30 per exposure, variable expenses plus profit are 25% of premium, and the current average rate is $540 per exposure. The experience is given credibility Z=0.80Z = 0.80 against a complement indicating +3.0%. What is the credibility-weighted indicated rate change?
Solution
D is correct. The projected pure premium is 4,200,00010,000=$420\frac{4{,}200{,}000}{10{,}000} = \$420 per exposure. Adding the $30 fixed expense and dividing by the permissible loss ratio 1−0.25=0.751 - 0.25 = 0.75 gives an indicated average rate of 420+300.75=$600\frac{420 + 30}{0.75} = \$600. The indicated change is 600540−1=11.11%\frac{600}{540} - 1 = 11.11\%. Credibility-weighting against the +3.0% complement: 0.80×11.11%+0.20×3.0%=8.89%+0.60%=9.5%.0.80 \times 11.11\% + 0.20 \times 3.0\% = 8.89\% + 0.60\% = 9.5\%.
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CAS Exam 5 Study Guide (Basic Techniques for Ratemaking and Estimating Claim Liabilities, 2026)

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