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 questions24 easy36 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
An insurer has four open claims valued at $250,000, $600,000, $900,000, and $1,500,000. The book is protected by a per-claim excess-of-loss treaty with a retention of $500,000 per claim (no aggregate limit). What are the net retained losses on these four claims?
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Correct Answer: B
Solution
B is correct. Under a per-claim excess-of-loss treaty the insurer retains each claim up to the $500,000 retention and cedes the excess. Retained amounts are min(claim,$500,000): $250,000, $500,000, $500,000, and $500,000. Summing gives $250,000+$500,000+$500,000+$500,000=$1,750,000.
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. Current ULAE includes the work of opening and maintaining new claims, while paid claims can reflect older, smaller cohorts. Dividing current paid ULAE by that lagging paid-loss base can inflate the selected ratio. Growth alone does not prove that the resulting reserve understates future workload. Kittel's refinement uses the average of calendar-year paid and incurred claims in the denominator; incurred claims include paid claims plus the change in case outstanding and IBNR. When incurred claims exceed paid claims, that denominator is larger and the selected ratio is lower. The classical method also assumes half the ULAE is spent at opening and half at settlement, but that general timing limitation does not specifically explain the growth-related denominator mismatch in this scenario.
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