Financial Modeling & Forecasting Flashcards
7 cards from real GAP 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
A GAP financial model projects a loss development tail factor of 1.15 beyond 24 months. What does this factor represent?
Answer: The expected additional claim payments beyond the 24-month evaluation period relative to losses reported to date
A tail factor of 1.15 means that 15% more claims payments are expected to emerge after the 24-month valuation date relative to amounts already reported.
When modeling GAP product revenue, 'unearned premium reserve' (UPR) represents:
Answer: The portion of written premium that corresponds to unexpired coverage and must be held as a liability
UPR is a liability representing premium collected but not yet earned because the corresponding coverage period has not expired.
In a GAP program sensitivity model, which two variables typically show the highest correlation with ultimate loss ratio?
Answer: Average LTV at origination and used-vehicle price index
Average LTV at origination and used-vehicle price movements are the primary drivers of GAP claim severity and therefore have the highest correlation with ultimate loss ratio.
A GAP administrator wants to project policy counts for the next 12 months. Which input data source is LEAST useful for this forecast?
Answer: Dealer principal's personal credit score
The dealer principal's personal credit score has no relationship to GAP policy volume; the other inputs directly inform new-vehicle sales and attachment rate trends.
Which modeling approach best captures the impact of early loan payoff on GAP exposure?
Answer: Dynamic prepayment model that adjusts outstanding balance for actual or expected payoffs
A dynamic prepayment model adjusts expected loan balances for actual payoff behavior, reducing projected GAP exposure when borrowers pay off loans ahead of schedule.
When stress-testing a GAP portfolio for a recession scenario, which assumption change would most aggressively stress the loss ratio?
Answer: Simultaneously increasing total loss frequency by 30% and decreasing used-car ACV by 20%
Combining higher total loss frequency with lower used-car values maximally stresses GAP losses by increasing both the number of claims and the average payout per claim.
In a GAP reserve adequacy review, actuaries compare 'booked' reserves to 'indicated' reserves. If indicated reserves exceed booked reserves, the program is said to be:
Answer: Under-reserved, meaning recorded reserves are insufficient to cover expected future claims
When indicated reserves (actuarial estimate) exceed booked reserves (recorded amount), the program is under-reserved and must strengthen its loss reserves.