Free CAS Exam 6-U.S. (Regulation and Financial Reporting) Tort Environment & Government Programs Practice Questions
The tort environment and government programs span two sections of CAS Exam 6-U.S.: tort litigation sits in United States Laws and Regulations (10-20% of the exam) and the programs in Government Programs (5-15%) (CAS). Questions test tort reform and class actions, the costs litigation creates, how mass torts and latent liabilities reach an insurer's balance sheet, why programs such as the NFIP, TRIA, crop insurance, and the residual auto and workers compensation markets exist, how they fund and transfer risk beside the private market, and how to judge whether one is working.
78 questions3 easy50 medium25 hard2026 syllabus
Sample Questions
Question 1
Easy
How is a typical state property-casualty guaranty association funded to pay the claims of an insolvent member insurer?
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Correct Answer: B
Solution
B is correct. Most state guaranty associations operate on a post-assessment basis: once a member is declared insolvent and covered claims exceed the estate's assets, the association levies assessments on the remaining solvent insurers writing the affected lines. Each insurer's share is allocated in proportion to its premium in those lines, so the surviving market collectively absorbs the cost of the failure.
Question 2
Medium
A liability insurer's actuary is classifying the costs that a wave of class-action litigation imposes on the tort system. Which of the following is a transaction cost of the system rather than a transfer to injured parties?
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Correct Answer: A
Solution
A is correct. Tort costs split between transfers to injured parties (compensation) and the transaction costs consumed in running the system. Defense counsel fees, plaintiff attorney fees, and court administration are frictional costs that do not reach claimants as compensation; they are the classic transaction (deadweight) costs of litigation. Economic, non-economic, and punitive awards, however paid out, are transfers of value to the plaintiff.
Question 3
Hard
In evaluating exposure trends, an actuary compares a mass tort resolved as a class action against the same claims pursued as separate individual suits. Which statement best characterizes the litigation cost structure of the class-action path?
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Correct Answer: A
Solution
A is correct. Aggregating claims into a class action spreads fixed litigation and administrative expense across many claimants, lowering the transaction cost attributable to each individual claim. At the same time, aggregation draws in claimants who would never have filed individually and creates settlement pressure from the combined exposure, so the total liability an insurer faces can be larger than the sum of the claims that would otherwise have been pursued separately.
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