Free CAS Exam 5 (Basic Ratemaking and Reserving) Principles, Implementation & Regulation Practice Questions
Principles, implementation, and regulation close the Ratemaking section of CAS Exam 5 (45-55% of the exam, CAS). Questions test the four principles of the CAS Statement of Principles Regarding Property and Casualty Insurance Ratemaking, how new rates reach practice through rating algorithms, minimum premiums, and non-pricing alternatives, and the qualitative and regulatory factors that shape how a rate proposal is built and filed.
30 questions10 easy15 medium5 hard2026 syllabus
Sample Questions
Question 1
Easy
In a prior-approval regulatory jurisdiction, which statement best describes how the regulatory regime shapes the filing of a proposed rate change?
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Correct Answer: B
Solution
B is correct. Under a prior-approval regime the insurer must submit its rate filing and obtain the regulator's affirmative approval before the new rates may take effect. This front-loads the regulatory review into the filing process, so anticipated objections, supporting exhibits, and the size of the requested change all influence how the proposal is built and how long implementation may take.
Question 2
Medium
In implementing a rating plan, what is the primary purpose of a minimum premium?
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Correct Answer: B
Solution
B is correct. A minimum premium is a floor applied when the premium produced by the rating algorithm is very small. It ensures that every policy contributes enough to cover the fixed expenses and the basic cost of providing coverage, which do not scale down proportionally with a tiny exposure.
Question 3
Hard
To win share in a competitive segment, an insurer deliberately files a rate for one class that it knows is below that class's expected costs, intending to recover the shortfall by overcharging a separate, captive class. Which principle of the CAS Statement of Principles is most directly violated?
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Correct Answer: D
Solution
D is correct. The four principles require that a rate provide for the costs associated with an individual risk transfer, so that each class stands on its own expected costs. Deliberately setting one class below its expected costs and cross-subsidizing from a captive class means that class's rate no longer provides for its own individual transfer costs, producing an inadequate and unfairly discriminatory result. That is the principle most directly violated here.
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