Free CAS Exam 5 (Basic Ratemaking and Reserving) Premium, Loss & Trend Adjustments Practice Questions
Practice 34 free Premium, Loss & Trend Adjustments questions for CAS Exam 5 (Basic Ratemaking and Reserving).
Sample Questions
Question 1
Easy
When restating historical premium for a rate indication, an actuary reflects premium audits. What is the primary purpose of doing so?
Solution
D is correct. Many policies (e.g., workers compensation, general liability) are written on estimated exposures such as payroll or sales and are audited after the term. Reflecting the audit trues the recorded premium up or down to the actual exposure, so the premium in the experience period matches the exposure that actually generated the losses.
Question 2
Medium
Under a claims-made policy that carries a retroactive date, which claims does the coverage respond to?
Solution
C is correct. A claims-made policy is triggered by the report date: it covers claims first reported to the insurer during the policy period, provided the underlying event occurred on or after the retroactive date. This report-date trigger is what distinguishes claims-made from occurrence coverage, which is instead triggered by the date of the event.
Question 3
Hard
For accident year 2025, reported losses are $4,000,000 and reported ALAE is $400,000. A loss development factor of 1.25 applies to the combined loss and ALAE. ULAE is estimated at 6% of ultimate loss and ALAE. What is the ultimate loss and LAE for the year?
Solution
D is correct. Combine loss and ALAE: . Develop to ultimate: . Add ULAE at 6% of ultimate loss and ALAE: . Ultimate loss and LAE .