CAS Risk Assessment and Management 3

Question 1

Which statistical distribution is commonly used to model the number of claims in an insurance portfolio due to its flexibility with the mean-variance relationship?

Accepted Answer

Negative binomial distribution

Answer

The negative binomial distribution is widely used for claim counts because it allows the variance to exceed the mean, capturing overdispersion common in insurance data.

Question 2

A catastrophe model's 'event set' refers to:

Accepted Answer

A catalog of simulated natural disaster scenarios with probabilities and intensities

Answer

An event set is the stochastic catalog of thousands of simulated hazard events, each with an annual rate of occurrence and geographic footprint.

Question 3

The 'probable maximum loss' (PML) at the 99th percentile means:

Accepted Answer

There is a 1% chance losses will exceed this level in a given year

Answer

A 99th percentile PML means there is a 1-in-100 annual probability that losses will exceed this amount.

Question 4

Which of the following is an example of 'moral hazard' in insurance?

Accepted Answer

An insured taking fewer safety precautions after purchasing insurance

Answer

Moral hazard occurs when insurance coverage reduces the insured's incentive to prevent losses, leading to riskier behavior post-purchase.

Question 5

In risk mapping, a risk heat map typically plots risks on axes representing:

Accepted Answer

Frequency vs. severity

Answer

Heat maps plot frequency (likelihood) on one axis and severity (impact) on the other to visually prioritize risks requiring attention.

(CAS) Casualty Actuarial Society Practice Test

(CAS) Casualty Actuarial Society Practice Test

CAS Risk Assessment and Management 3