Free CAS Exam 5 (Basic Ratemaking and Reserving) Recoveries, LAE & Reserve Evaluation Practice Questions
Recoveries, LAE, and reserve evaluation close the Estimating Claim Liabilities section of CAS Exam 5 (45-55% of the exam, CAS). Questions test estimating salvage, subrogation, and reinsurance recoveries, projecting unpaid ALAE with ratio-to-loss development and unpaid ULAE with the paid-to-paid and refined methods, judging an estimate through its implied loss ratios, severities, frequencies, and pure premiums, and tracking actual versus expected emergence between full reserve studies.
103 questions25 easy35 medium43 hard2026 syllabus
Sample Questions
Question 1
Easy
In an unpaid claim analysis, how are anticipated salvage and subrogation recoveries typically reflected when moving from a gross to a net unpaid claim estimate?
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Correct Answer: E
Solution
E is correct. Salvage and subrogation represent amounts the insurer expects to recover after paying claims. In a net analysis the actuary projects the ultimate recoveries expected in the future and subtracts them from the gross unpaid estimate, producing an unpaid claim estimate net of anticipated recoveries.
Question 2
Medium
To judge whether an unpaid claim estimate is reasonable, an actuary examines the pure premium it implies. The estimate produces ultimate losses of $7,200,000 over 24,000 earned car-years. What is the implied pure premium?
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Correct Answer: E
Solution
E is correct. The implied pure premium is ultimate losses divided by earned exposures: 7,200,000/24,000=300. The actuary compares this $300 implied pure premium against historical and industry pure premiums to assess whether the underlying unpaid claim estimate is adequate and reasonable.
Question 3
Hard
An actuary must project unpaid unallocated loss adjustment expense (ULAE) for a commercial line whose claim counts have been growing rapidly while paid losses lag behind the exposure growth. A colleague proposes the classical paid-to-paid method. Which limitation of that method is most relevant here?
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Correct Answer: B
Solution
B is correct. The classical paid-to-paid method relates ULAE to loss dollars, implicitly assuming a stable relationship between ULAE and paid losses. When claim counts grow faster than paid losses, future maintenance and handling work is not yet reflected in paid loss dollars, so the ratio-based reserve is understated relative to the true future workload.
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