CAS CAS Actuarial Modeling and Pricing Techniques 1

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

The pure premium method directly derives a loss cost per exposure unit, which is then loaded for expenses and profit to produce the final rate.

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

On-leveling (or bringing premiums to current level) ensures historical premiums are comparable to current rates before computing historical loss ratios.

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

Loss development factors (also called age-to-age factors) are derived from historical loss triangles and applied to immature losses to estimate ultimate claim costs.

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

The BF method is valuable for immature accident years where little data exists, balancing observed development patterns with an independent a priori loss estimate.

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

The log link function produces a multiplicative rating structure where rating factors for different variables multiply together, which is standard in P&C insurance pricing.

(CAS) Casualty Actuarial Society Practice Test

(CAS) Casualty Actuarial Society Practice Test

CAS CAS Actuarial Modeling and Pricing Techniques 1