FREE ACTUARY Professional and Practical Applications Questions and Answers
An insurance company decides to reinsure part of its policies. Which of the following is the primary purpose of reinsurance?
Reinsurance is a risk management strategy where an insurer transfers part of its risk to another company. This helps reduce the financial impact of large claims and ensures stability.
Which of the following is a commonly used tool in actuarial analysis?
Python is widely used in actuarial work for statistical analysis, data manipulation, and building predictive models. It is particularly valued for its libraries such as NumPy, Pandas, and SciPy, which are essential in actuarial computations.
An insurance company charges an annual premium of $500 for a health policy. The expected annual claim amount is $400, and the company’s administrative costs are $50 per policy. What is the company’s profit margin per policy?
Profit margin is calculated as: Profit Margin= Premium - Costs/Premium×100 Profit Margin= 500−(400+50)/500 ×100= 50/500 ×100=10%
An insurance company must maintain solvency ratios to comply with regulatory requirements. What does a solvency ratio measure?
A solvency ratio measures whether an insurance company has enough capital relative to its liabilities, ensuring it can meet long-term claims and obligations to policyholders.
Why are reserves important in an insurance company’s financial reporting?
Reserves are funds set aside to cover future claim payments. These ensure the company can meet its obligations to policyholders, demonstrating financial stability and compliance with regulatory requirements.