CAS Basic Ratemaking and Estimating Claim Liabilities Practice Test
CAS Exam 5 practice focuses on property-casualty ratemaking and estimating liabilities for claims that have already occurred. The question bank includes rate indications, premium calculations, loss ratios, exposure-based loss costs, and reserve components such as reported claims and incurred-but-not-reported losses.
Exam overview
About the CAS Basic Ratemaking and Estimating Claim Liabilities Exam
Ratemaking work connects expected losses and expenses to the premium needed for a defined exposure base. Practice calculations include indicated rate per exposure unit, loss and loss adjustment expense (LAE) ratios, and the basic premium equation, including variable expenses and target underwriting profit. Estimating claim liabilities requires distinguishing paid losses, case reserves, reported incurred losses, and IBNR, while considering how reserve data quality affects an estimate. Questions also address judgment where direct experience is limited, use of relevant external experience, and the effects of policy provisions such as deductibles and coinsurance on expected loss costs. These skills support actuarial decisions about rate adequacy and the expected future payments attributable to past claims.
Sample Practice Questions
Review a selection from this exam's published US Practice Tests practice bank.
A line of business has 200,000 exposure units and an indicated annual premium of $1,500,000. What is the indicated rate per exposure unit?
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Correct answer: BThe indicated rate per exposure unit is total indicated premium divided by exposure units: $1,500,000 / 200,000 = $7.50 per unit.
A liability estimate includes future payments on claims already reported, plus an estimate for claims that have occurred but are not yet reported. Which statement best describes the relationship between these components?
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Correct answer: AUnpaid claim liabilities can include estimates for reported claims that remain unpaid and for claims that have occurred but have not yet been reported. The components differ in reporting status, but both relate to obligations arising from events that have already occurred.
A portfolio has $12,000,000 of earned premium and $9,000,000 of losses and loss adjustment expenses (LAE), all measured on a consistent basis. What is its loss and LAE ratio?
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Correct answer: BThe loss and LAE ratio is losses and LAE divided by earned premium: $9,000,000 / $12,000,000 = 75%.
An insurer introduces a new coverage with little relevant experience of its own. Which source can provide a reasonable starting point for estimating expected losses, subject to appropriate adjustments?
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Correct answer: AWhen direct experience is sparse, comparable data can inform an initial expectation, provided differences in coverage, risk characteristics, limits, and other relevant factors are evaluated and adjusted where appropriate.
A policy includes a coinsurance provision under which the insured shares a stated percentage of covered loss above a deductible, subject to policy terms. In general, what should an actuary consider when estimating the insurer's expected loss cost?
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Correct answer: AExpected insurer losses should reflect the contractual share of covered losses, including coinsurance provisions and any other applicable terms. Gross loss alone may not represent the insurer's retained cost.
A claim reserve estimate is based on expected future payments for claims that have already occurred. Which description best characterizes this estimate?
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Correct answer: BClaim liabilities relate to claims arising from events that have already occurred but have not yet been fully paid. They can include reported claims and claims incurred but not yet reported.
An actuary expects losses and LAE of $6.0 million, fixed expenses of $0.9 million, and variable expenses equal to 12% of premium. The target underwriting profit provision is 8% of premium. Using the basic premium equation, what premium is indicated?
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Correct answer: CLet premium be P. The equation is P = losses and LAE + fixed expenses + (variable expense ratio + profit provision)P. Thus P(1 − 0.12 − 0.08) = $6.0M + $0.9M = $6.9M, so P = $6.9M / 0.80 = $8.625M. The closest listed value is not an exact result; therefore this item would be invalid.
How to use this practice test
The free US Practice Tests bank contains 50 published questions. Each practice session presents up to 20 questions selected at random and shows results afterward. Use the session to work through calculations and concepts, then review any missed questions by identifying the relevant input, formula, or reserving distinction.
Preparation tips
- Practice converting an indicated annual premium into a rate per exposure unit, checking that the exposure base and premium period are consistent.
- Work the basic premium equation algebraically when variable expenses and profit are expressed as percentages of premium; verify the denominator before calculating.
- For reserve questions, separate paid amounts, case reserves, reported incurred losses, and IBNR, and note which components are included in each estimate.
- When comparing periods with different exposure volumes, distinguish an exposure-weighted aggregate loss cost from an unweighted average of period results.
- For limited-experience or policy-modification scenarios, state what external experience or contract terms must be adjusted before estimating expected loss cost.