Financial Modeling & Forecasting Flashcards
7 cards from real CIA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Modeling & Forecasting flashcards as text
An insurer's loss reserve development model shows consistent adverse development over five accident years. What does this pattern most likely indicate?
Answer: Initial reserves are systematically understated
Consistent adverse (upward) reserve development over multiple accident years signals that initial reserve estimates are systematically too low.
In a property insurance rate adequacy model, the 'indicated rate change' is calculated as the difference between the indicated rate and the current rate. If the indicated rate is $1,200 and the current rate is $1,000, what is the indicated rate change percentage?
Answer: 20%
The indicated rate change percentage is ($1,200 − $1,000) / $1,000 = 20%, meaning rates need to increase by 20% to achieve adequacy.
Which approach is used in financial modeling to account for the time value of money when evaluating long-tail property insurance claims?
Answer: Present value discounting of loss reserves
Present value discounting adjusts future loss payments back to today's dollars, capturing the time value of money for long-tail liabilities.
A forensic insurance appraiser is modeling business interruption (BI) losses. Which financial statement is the PRIMARY source for estimating projected net income during the indemnity period?
Answer: Income statement (profit & loss)
The income statement shows revenue, expenses, and net income, making it the primary source for projecting BI losses during the period of restoration.
In an insurance financial model, 'expense ratio' is defined as which of the following?
Answer: Underwriting expenses divided by written premiums
The expense ratio equals underwriting expenses (including acquisition and administrative costs) divided by net written premiums.
An appraiser uses regression analysis to forecast property values. The R² of the model is 0.92. What does this indicate?
Answer: The model explains 92% of the variance in property values
R² (coefficient of determination) measures how much of the dependent variable's variance is explained by the independent variables — 0.92 means 92% of variance is explained.
When building a financial model to estimate replacement cost for a commercial building destroyed by fire, which costing method produces the MOST accurate current reconstruction estimate?
Answer: Unit-in-place cost method using current labor and material rates
The unit-in-place method applies current labor and material costs to quantified building components, yielding the most accurate replacement cost new estimate.