CIA CIA Insurance Market Analysis & Pricing 2 — Questions and Answers
Question 1: A CIA appraiser reviewing a commercial property portfolio notices increasing loss trends in a specific region. This information is most useful for:
- Determining individual claim settlements
- Informing underwriting and pricing decisions for future policies in that region (Correct answer)
- Setting the insured's personal deductible
- Filing regulatory surplus reports
Correct answer: Informing underwriting and pricing decisions for future policies in that region
Regional loss trend analysis informs actuarial and underwriting decisions about rate adequacy and risk selection for future policy pricing in that area.
Question 2: What is the primary purpose of reinsurance in the insurance market?
- To provide direct coverage to policyholders
- To allow primary insurers to transfer a portion of risk, protecting their capital and stabilizing results (Correct answer)
- To regulate premium rates across the industry
- To fund state guaranty associations
Correct answer: To allow primary insurers to transfer a portion of risk, protecting their capital and stabilizing results
Reinsurance allows primary insurers to cede a portion of their risk to reinsurers, protecting their surplus from large or catastrophic losses and enabling them to write more business.
Question 3: In pricing commercial property insurance, 'rate adequacy' means:
- Premiums are the lowest in the market
- Premiums are sufficient to cover expected losses, expenses, and provide a reasonable profit (Correct answer)
- Premiums match the state-mandated maximum rate
- Premiums are equal for all commercial risks
Correct answer: Premiums are sufficient to cover expected losses, expenses, and provide a reasonable profit
Rate adequacy means the charged premium is sufficient to cover the expected losses plus expenses and provide a reasonable profit margin, ensuring the insurer remains solvent.
Question 4: Which of the following best describes a 'monoline' insurer?
- An insurer writing only one line of insurance, such as property only (Correct answer)
- An insurer with a single geographic territory
- An insurer that uses only one distribution channel
- An insurer with a single reinsurance treaty
Correct answer: An insurer writing only one line of insurance, such as property only
A monoline insurer specializes in and writes only one line of insurance, such as property, title, or mortgage insurance, as opposed to a multi-line insurer.
Question 5: When a CIA appraiser analyzes insurance-to-value (ITV) ratios across a portfolio, a ratio significantly below 100% indicates:
- The properties are overinsured, creating moral hazard
- The properties are underinsured, meaning the coverage limit is less than the actual replacement cost (Correct answer)
- The premium is too high relative to value
- The portfolio is catastrophe-exposed
Correct answer: The properties are underinsured, meaning the coverage limit is less than the actual replacement cost
An ITV ratio below 100% means the policy limit is less than the property's actual replacement cost, leaving the insured potentially responsible for a portion of losses.
Question 6: State insurance regulators in the US require rate filings primarily to ensure that insurance rates are:
- The lowest possible for consumers
- Not excessive, inadequate, or unfairly discriminatory (Correct answer)
- Uniform across all insurers in the state
- Set by a central government authority
Correct answer: Not excessive, inadequate, or unfairly discriminatory
State regulators review rate filings to ensure rates are not excessive, not inadequate, and not unfairly discriminatory against policyholders.
CIA CIA Insurance Market Analysis & Pricing 2
A CIA appraiser reviewing a commercial property portfolio notices increasing loss trends in a specific region.
This information is most useful for: