CAS CAS Loss Reserving and Ratemaking Fundamentals 1

Question 1

What is the primary purpose of loss reserves in property-casualty insurance?

Accepted Answer

To represent the insurer's estimated obligation for unpaid claims

Answer

Loss reserves are a balance sheet liability representing the insurer's best estimate of future payments for claims that have already occurred.

Question 2

What does IBNR stand for in actuarial reserving?

Accepted Answer

Incurred But Not Reported

Answer

IBNR (Incurred But Not Reported) reserves cover losses that have occurred but have not yet been reported to the insurer.

Question 3

The chain-ladder loss development method organizes data using which structure?

Accepted Answer

Loss development triangles

Answer

The chain-ladder method arranges cumulative loss data in development triangles by accident year and development period to project losses to ultimate.

Question 4

What is a loss development factor (LDF)?

Accepted Answer

A ratio used to project losses from one development period to the next

Answer

LDFs (age-to-age factors) are ratios derived from historical triangles that project cumulative losses from one evaluation period to a later period.

Question 5

The Bornhuetter-Ferguson reserving method blends which two approaches?

Accepted Answer

The loss development method and the expected loss method

Answer

The Bornhuetter-Ferguson method combines the chain-ladder development method with the expected loss (a priori) method using credibility weighting.

(CAS) Casualty Actuarial Society Practice Test