CAS CAS Actuarial Modeling and Pricing Techniques

Question 1

What is the 'pure premium' method for calculating insurance rates?

Accepted Answer

Dividing projected ultimate losses by the number of exposures to derive the average loss cost per exposure unit

Answer

Dividing total premium by the number of policies in force

Answer

Multiplying the loss ratio by the current average premium

Answer

Calculating the ratio of incurred losses to earned premium

Question 2

In actuarial ratemaking, what does 'on-leveling' premium data accomplish?

Accepted Answer

Adjusting historical premium to reflect what it would have been at current rate levels

Answer

Removing the effect of inflation from historical loss data

Answer

Credibility-weighting the insurer's own experience against industry data

Answer

Projecting future premium volume based on historical growth trends

Question 3

What is the 'loss development factor' (LDF) used for in casualty actuarial work?

Accepted Answer

To project reported or paid losses at an interim age to their ultimate settled value

Answer

To adjust losses for inflation between accident years

Answer

To convert incurred losses to paid losses for cash flow projections

Answer

To measure the ratio of large losses to total losses in a portfolio

Question 4

Which of the following best describes the Bornhuetter-Ferguson (BF) reserve method?

Accepted Answer

A weighted blend of the development method and the expected loss method, giving credibility to both reported losses and an a priori expected loss estimate

Answer

A purely extrapolative method that relies solely on historical loss development patterns

Answer

A frequency-severity method that multiplies claim counts by average severity

Answer

A regression-based method using economic variables to predict ultimate losses

Question 5

In GLM (Generalized Linear Model) ratemaking, what is the typical link function used for multiplicative rating plans?

Accepted Answer

Log link function

Answer

Identity link function

Answer

Logit link function

Answer

Probit link function

Question 6

What is 'credibility theory' used for in casualty actuarial pricing?

Accepted Answer

To blend an insured's own experience with external data in proportion to the statistical reliability of the insured's data

Answer

To assess whether an actuary's reserve opinion is reliable enough to publish

Answer

To measure how accurately a rating plan predicts future losses

Answer

To determine whether an insurer's surplus is adequate to write new business