Free CAS Exam 5 (Basic Ratemaking and Reserving) Ratemaking Data & Exposures Practice Questions
Practice 24 free Ratemaking Data & Exposures questions for CAS Exam 5 (Basic Ratemaking and Reserving).
Sample Questions
Question 1
Easy
Which of the following best describes the role of an exposure base in the ratemaking process?
Solution
C is correct. An exposure base is the fundamental measure of the amount of risk an insurer assumes. In the rating algorithm, premium equals the rate (price per unit of exposure) multiplied by the number of exposure units. Because pure premium is defined as losses divided by exposures, the exposure base serves as the denominator that normalizes loss experience so rates can be developed on a per-unit basis.
Question 2
Medium
An actuary is deciding whether to split an existing rating class into several finer segments. Which statement best captures the trade-off involved?
Solution
E is correct. Partitioning into finer segments groups more similar risks together, raising within-segment homogeneity. However, each finer segment contains less data, so the credibility of each segment's own experience declines. This homogeneity-versus-credibility tension is the central trade-off in partitioning.
Question 3
Hard
An insurer writes annual policies uniformly throughout the year. A rate increase takes effect for all policies written on or after July 1, 2024. Using the parallelogram (geometric) method, what portion of calendar year 2024 earned premium is at the new (higher) rate level?
Solution
C is correct. On the calendar-year 2024 earned-premium unit square, the new rate applies to a triangular region whose area is , where is the fraction of the year elapsed when the change takes effect. Thus , or about 12.5% of CY2024 earned premium at the new rate. The remaining 87.5% is still earned at the old rate.