CU Study Guide 2026

An aleatory contract is one where the performance of one or both parties is contingent upon an uncertain event. In insurance, the insured pays a relatively small premium, while the insurer may be required to pay a much larger sum if a covered loss occurs. This unequal exchange of value, dependent on chance, is the defining characteristic of an aleatory contract.

Third-party data may be outdated, incomplete, or subject to fair lending and privacy regulations, requiring underwriters to validate quality and compliance before relying on it.

When models are trained on historical data that reflects past discriminatory practices, they can perpetuate those patterns, raising regulatory and ethical concerns.

In prior-approval states, insurers must file proposed rates with the state insurance department and receive explicit approval before implementing them.

Model drift occurs when the population or risk environment shifts away from the historical patterns the model was trained on, reducing its predictive power and requiring recalibration.

A catastrophic loss refers to massive damage or destruction resulting from major disasters, such as hurricanes, earthquakes, or widespread fires. These events typically affect a large number of policyholders over a wide geographical area, leading to exceptionally high insured losses. Such losses often require significant resources and coordinated efforts from insurers to manage.