Actuary Certification Risk Assessment 3

Question 1

In mortality risk assessment, what is the 'select period' in a select-and-ultimate mortality table?

Accepted Answer

The period during which recently underwritten lives exhibit lower mortality than the general population

Answer

The select period reflects the underwriting effect — newly insured individuals have been health-screened, so their mortality is lower than that of the general population for a set number of years.

Question 2

What is 'systematic risk' in the context of an insurance enterprise risk management framework?

Accepted Answer

Market-wide risk that affects all insurers simultaneously and cannot be diversified

Answer

Systematic risk (also called non-diversifiable risk) stems from macroeconomic or market-wide factors like catastrophes, pandemics, or interest rate shocks that affect all insurers.

Question 3

Which of the following best describes 'basis risk' in a catastrophe hedging strategy using industry loss warranties (ILWs)?

Accepted Answer

The mismatch between actual company losses and the industry loss trigger

Answer

Basis risk in ILWs arises because the industry-wide trigger may be activated (or not) in ways that do not perfectly correlate with the specific insurer's actual losses.

Question 4

The 'ruin probability' in classical collective risk theory is defined as the probability that:

Accepted Answer

The surplus process becomes negative at some point in time

Answer

Ruin probability (ψ) measures the chance that an insurer's surplus U(t) drops below zero at any time t, given initial surplus u and net premium rate c.

Question 5

What does the 'coefficient of variation' (CV) measure in loss distribution analysis?

Accepted Answer

The ratio of the standard deviation to the mean, measuring relative variability

Answer

CV = σ/μ expresses variability as a percentage of the mean, allowing comparison of dispersion across distributions with different scales.

Actuary Certification Practice Test

Actuary Certification Practice Test

Actuary Certification Risk Assessment 3