ACTUARY Professional and Practical Applications Flashcards
7 cards from real Actuary Certification practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 ACTUARY Professional and Practical Applications flashcards as text
An actuary calculates the IRR of an insurance product to be 12%, while the hurdle rate is 15%. What does this imply?
Answer: The product destroys shareholder value as priced
When the IRR is below the hurdle (required return) rate, the product does not meet profitability targets and is value-destructive as priced.
Which actuarial exam topic covers the mathematics of compound interest, annuities, and bonds — foundational to all actuarial work?
Answer: Exam FM
Exam FM (Financial Mathematics) covers time value of money, annuities, bonds, and related topics central to actuarial practice.
Under the Casualty Actuarial Society's ratemaking principles, which of the following is NOT a fundamental principle?
Answer: Rates must be approved by federal regulators before implementation
Insurance rate regulation is a state-level function in the US; there is no federal rate approval requirement under the McCarran-Ferguson Act.
In IBNR development, the term 'tail factor' refers to:
Answer: Development from the latest available period to ultimate
The tail factor (or tail development factor) accounts for loss development beyond the last observable period to ultimate settlement.
A life actuary is pricing a universal life policy with secondary guarantees (ULSG). The main regulatory reserve standard applicable is:
Answer: VM-20
VM-20 (Valuation Manual Section 20) governs principle-based reserving for life insurance products including ULSGs, replacing AG 38 requirements.
The Appointed Actuary for a P&C insurer signs the Statement of Actuarial Opinion (SAO). The reserves opined upon must be:
Answer: Within a range the actuary finds reasonable, with the opinion noting any deficiency
The SAO requires the actuary to opine on whether reserves are reasonable, noting if carried amounts are below or above the reasonable range.
Which statistical distribution is commonly used in actuarial science to model aggregate claim severity because it is right-skewed and has a heavy tail?
Answer: Lognormal distribution
The lognormal distribution is widely used for claim severity modeling because it naturally produces right-skewed, positive-only values typical of insurance losses.