Free CAS Exam 6-U.S. (Regulation and Financial Reporting) Tort Environment & Government Programs Practice Questions
Practice 72 free Tort Environment & Government Programs questions for CAS Exam 6-U.S. (Regulation and Financial Reporting).
Sample Questions
Question 1
Easy
How are state property-casualty guaranty funds primarily funded?
Solution
E is correct. Most state guaranty funds operate on a post-assessment basis: when a licensed insurer becomes insolvent, the fund pays covered claims and then assesses the remaining solvent insurers writing similar lines in the state. Each solvent insurer's share is generally proportional to its premium volume, spreading the cost of the failure across the surviving market.
Question 2
Medium
An insurer that wrote general liability policies in the 1980s now faces a growing wave of asbestos bodily-injury claims. Which feature of such latent mass-tort liabilities most complicates the insurer's current reserving?
Solution
D is correct. Latent mass torts such as asbestos are defined by a long latency period: exposure occurs decades before disease manifests and claims are filed. As a result, claims keep emerging long after the underlying policies expired, and the bulk of the ultimate liability is incurred-but-not-reported (IBNR) that must be estimated with sparse and shifting data. Disputed coverage triggers and allocation across many policy years compound the uncertainty, making these reserves among the hardest to set.
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?
Solution
C 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.