Actuary Certification ACTUARY Professional and Practical Applications 3

Question 1

A property insurer wants to reflect trend in its ratemaking. Which component of trend adjusts historical premium to current rate level?

Accepted Answer

On-level factor

Answer

The on-level factor adjusts historical premiums to reflect the current rate level, accounting for rate changes since the historical period.

Question 2

Under Solvency II in the European framework, the Solvency Capital Requirement (SCR) is calibrated to:

Accepted Answer

99.5% VaR over one year

Answer

Solvency II calibrates the SCR to the 99.5th percentile Value-at-Risk over a one-year horizon, ensuring survival in 199 out of 200 years.

Question 3

When performing an asset adequacy analysis for a life insurer, the actuary tests whether assets are sufficient under various scenarios. This analysis is known as:

Accepted Answer

Cash flow testing

Answer

Cash flow testing projects asset and liability cash flows under multiple interest rate scenarios to assess asset adequacy.

Question 4

An actuary uses the loss ratio method in workers' compensation ratemaking. The indicated rate change is -5%. The current combined ratio is 108%. Which statement is most consistent?

Accepted Answer

The insurer is unprofitable but the method still indicates a decrease

Answer

A combined ratio above 100% indicates underwriting losses, but the loss ratio method can still indicate a decrease if actual losses are below expected.

Question 5

In a defined benefit pension plan, the Projected Unit Credit (PUC) method attributes benefit costs based on:

Accepted Answer

Each year of service earning one unit of projected benefit

Answer

Under PUC, each year of service credits one additional unit of the projected final benefit, so cost reflects the incremental unit earned each year.

Actuary Certification Practice Test

Actuary Certification Practice Test

Actuary Certification ACTUARY Professional and Practical Applications 3