CAS Loss Reserving and Ratemaking Fundamentals Flashcards
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What does a combined ratio below 100% indicate?
Answer: An underwriting profit
A combined ratio below 100% means the insurer collected more premium than it paid in losses and expenses, indicating an underwriting profit.
How is claim frequency defined in actuarial loss modeling?
Answer: The number of claims per unit of exposure
Frequency is the rate of claim occurrence measured as the number of claims divided by the exposure base (e.g., claims per 100 earned car-years).
What is pure premium in property-casualty ratemaking?
Answer: Average losses per unit of exposure
Pure premium equals total losses divided by total exposures, representing the average loss cost per unit of exposure before expenses and profit.
Why do actuaries apply on-level (rate level) adjustments to historical premium?
Answer: To restate historical premium as if written at current rates for accurate loss ratio analysis
On-level adjustments bring historical premium to current rate levels so that loss ratios across different years reflect consistent pricing for valid comparison.
For long-tail liability lines, which reserving approach is most appropriate?
Answer: A blend of development, Bornhuetter-Ferguson, and expected loss methods
Long-tail lines have significant IBNR and immature paid data, so actuaries blend multiple methods and weight results based on each method's reliability at that maturity.
How is severity defined in actuarial loss modeling?
Answer: The average dollar amount per claim
Severity is the average claim size, calculated as total incurred losses divided by the number of claims, and combined with frequency yields the pure premium.