CAS Strategic Planning and Decision Making 2 — Questions and Answers
Question 1: In a SWOT analysis for an insurance company, which of the following would be classified as an 'Opportunity'?
- High combined ratio relative to competitors
- Emerging market for cyber liability insurance (Correct answer)
- Legacy IT systems limiting operational efficiency
- Regulatory capital requirements increasing
Correct answer: Emerging market for cyber liability insurance
An opportunity in SWOT analysis is an external favorable factor, such as a new product market, that the company can exploit for growth.
Question 2: Which strategic planning framework uses four perspectives—financial, customer, internal processes, and learning & growth—to translate strategy into action?
- Porter's Five Forces
- Balanced Scorecard (Correct answer)
- Ansoff Matrix
- McKinsey 7-S Framework
Correct answer: Balanced Scorecard
The Balanced Scorecard, developed by Kaplan and Norton, aligns business activities to the vision and strategy of the organization using those four perspectives.
Question 3: A property-casualty insurer is considering entering a new geographic market. Under the Ansoff Matrix, this strategy is best described as:
- Market Penetration
- Product Development
- Market Development (Correct answer)
- Diversification
Correct answer: Market Development
Market Development involves selling existing products to new markets, such as geographic expansion, which fits entering a new region with existing coverage offerings.
Question 4: Which decision-making model assumes that decision makers have complete information and will always select the option that maximizes utility?
- Bounded Rationality Model
- Garbage Can Model
- Rational Choice Model (Correct answer)
- Incremental Model
Correct answer: Rational Choice Model
The Rational Choice Model assumes perfect information, clear preferences, and optimization, though in practice these conditions rarely hold.
Question 5: An insurer's strategic plan identifies a goal to reduce expense ratio by 5 points over three years. This goal is best described as:
- A tactical objective
- A mission statement
- A strategic objective (Correct answer)
- A key performance indicator
Correct answer: A strategic objective
A strategic objective is a specific, measurable goal that supports the organization's overall strategy and is typically set over a multi-year horizon.
Question 6: When applying scenario planning in P&C insurance, which of the following best describes the purpose of 'wild card' scenarios?
- To identify the most probable future state
- To represent low-probability, high-impact events that could disrupt strategy (Correct answer)
- To set base case financial projections
- To define the range of regulatory outcomes
Correct answer: To represent low-probability, high-impact events that could disrupt strategy
Wild card scenarios force strategic planners to consider extreme but plausible disruptions, improving organizational resilience and contingency preparedness.
Question 7: A casualty actuary is asked to quantify the strategic risk of entering a new line of business. Which approach most directly supports this analysis?
- Traditional chain-ladder reserve development
- Stochastic modeling of potential outcomes across multiple scenarios (Correct answer)
- Applying industry benchmark loss ratios
- Calculating the expense ratio from historical data
Correct answer: Stochastic modeling of potential outcomes across multiple scenarios
Stochastic modeling generates a distribution of outcomes across scenarios, enabling quantification of uncertainty and strategic risk in new ventures.
CAS Strategic Planning and Decision Making 2
In a SWOT analysis for an insurance company, which of the following would be classified as an 'Opportunity'?