CAS CAS Property and Casualty Insurance Fundamentals 2

Question 1

What distinguishes surplus lines insurance from admitted insurance in the US?

Accepted Answer

Surplus lines insurers are not licensed in the state but may write risks that admitted carriers decline

Answer

Surplus lines insurers operate outside normal state licensing requirements and state guaranty fund protection, filling coverage gaps for risks that admitted carriers won't write.

Question 2

What is a 'combined ratio' in property and casualty insurance?

Accepted Answer

The sum of the loss ratio and the expense ratio, indicating overall underwriting profitability

Answer

A combined ratio below 100% indicates underwriting profit; above 100% indicates an underwriting loss, though investment income may still make the line profitable overall.

Question 3

Which of the following is an example of a 'long-tail' line of business in casualty insurance?

Accepted Answer

Medical malpractice liability

Answer

Medical malpractice is a long-tail line because claims can be reported and settled many years after the policy period ends, creating significant reserving uncertainty.

Question 4

What does 'adverse development' mean in the context of loss reserves?

Accepted Answer

Actual losses emerging higher than previously estimated reserves

Answer

Adverse development occurs when actual claim payments and emerging losses exceed the amounts previously set aside as reserves, requiring reserve strengthening.

Question 5

In commercial property insurance, what does 'business interruption' coverage provide?

Accepted Answer

Replacement of lost income and continuing expenses when a covered peril forces a business to suspend operations

Answer

Business interruption insurance covers the income a business would have earned and necessary continuing expenses during the period of restoration after a covered property loss.

(CAS) Casualty Actuarial Society Practice Test

(CAS) Casualty Actuarial Society Practice Test

CAS CAS Property and Casualty Insurance Fundamentals 2