CAA Life & Health Insurance Principles Flashcards
6 cards from real CAA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 CAA Life & Health Insurance Principles flashcards as text
What is 'reinsurance' and why do primary life and health insurers purchase it?
Answer: An arrangement where a primary insurer transfers a portion of its risk to another insurer to limit large losses and stabilize results
Reinsurance is a risk transfer mechanism in which a primary insurer cedes part of its exposure to a reinsurer, reducing volatility, limiting catastrophic losses, and managing capital requirements.
In life insurance, what is the 'interest rate risk' that an actuary must consider when pricing long-duration products?
Answer: The risk that investment yields will fall below the rates assumed in pricing, causing reserves to be inadequate
If actual investment returns fall below the rates embedded in pricing assumptions, the insurer will not earn enough to fund promised benefits, creating a reserve shortfall.
What does 'lapse rate' measure in life insurance actuarial analysis?
Answer: The proportion of in-force policies that terminate voluntarily through surrender or non-payment of premium in a given period
The lapse rate measures voluntary policy terminations (surrenders and non-renewals) as a proportion of in-force business, affecting both mortality experience and the insurer's profitability.
Under US statutory accounting, what is the difference between a 'policy reserve' and a 'claim reserve'?
Answer: A policy reserve covers future obligations on in-force policies; a claim reserve covers reported but unpaid claims
Policy reserves are prospective liabilities for benefits still to become due under in-force contracts, while claim reserves are retrospective liabilities for reported claims that have not yet been fully paid.
What is the primary actuarial concern with 'guaranteed issue' health insurance products that do not use medical underwriting?
Answer: The risk pool will likely include disproportionately sicker individuals, creating adverse selection and higher-than-average claims
Without medical underwriting, guaranteed issue products attract a higher proportion of unhealthy applicants, leading to adverse selection and a claims experience worse than the general population average.
What is the role of an 'appointed actuary' at a US life insurance company?
Answer: To provide a professional opinion on the adequacy of statutory reserves and compliance with asset adequacy standards
The appointed actuary provides a formal actuarial opinion in the company's statutory annual statement, certifying that reserves are adequate and that the company can meet its obligations under various scenarios.