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Actuarial Examinations · Exam 7

CAS Advanced Estimation of Claims Liabilities Practice Test

The CAS Advanced Estimation of Claims Liabilities exam concerns actuarial methods for estimating unpaid property-casualty claim costs. Practice topics include projecting ultimate losses, separating paid amounts from remaining liabilities, assessing reported and unreported claims, and interpreting results affected by large losses or reinsurance terms.

Exam overview

Exam providerCasualty Actuarial Society
Exam codeExam 7
CategoryActuarial Examinations

About the CAS Advanced Estimation of Claims Liabilities Exam

Claims reserving requires selecting and evaluating estimates from incomplete, changing data. The practice questions address paid-loss development, ultimate loss estimates, and the relationship between ultimate losses and amounts paid to date. They also sample reserve distinctions, including claims that have occurred but are not yet reported, and the treatment of claims with no case reserve. Other questions consider excess-of-loss retentions, large-loss effects, claim-count assumptions such as the Poisson distribution, and diagnostics for portfolios with many small claims. These skills support reviewing data quality, identifying factors that can distort aggregate experience, assessing changes between a valuation date and data receipt, and explaining uncertainty. When multiple methods produce a range, an actuary must communicate what the selected estimate represents and how its limitations affect decisions.

Sample Practice Questions

Review a selection from this exam's published US Practice Tests practice bank.

Question 1

An insurer estimates ultimate losses for an accident year at $12 million using a paid-loss development method. Which statement best describes this estimate?

  1. AIt is the sum of paid losses to date and an estimate of future payments derived from the selected development pattern.
  2. BIt is the sum of reported losses to date and case reserves, with no allowance for future claim emergence.
  3. CIt is the amount expected to be paid during the current calendar year, regardless of accident year.
  4. DIt is the expected premium for the accident year less allocated loss adjustment expenses.
Show answerCorrect answer: A

A paid-loss development method projects cumulative paid losses to an ultimate amount using a selected pattern of payment emergence. The difference between projected ultimate and paid to date represents future payments.

Question 2

A reserving actuary is reviewing a claim that may exceed the insurer’s per-occurrence retention under an excess-of-loss reinsurance contract. Which amount is most directly relevant to the insurer’s net claim cost, before considering other reinsurance terms?

  1. AThe full gross amount of the claim, without regard to the retention
  2. BThe portion of the covered claim above the retention, subject to the contract’s limits and terms
  3. CThe claim’s case reserve less all paid amounts
  4. DThe claim’s reported amount multiplied by the ceded premium rate
Show answerCorrect answer: B

For excess-of-loss coverage, the reinsurer generally responds to covered losses above the attachment point, subject to the contract’s limits, exclusions, and other terms. The insurer’s net cost therefore depends on the recoverable portion, not simply on the gross claim amount.

Question 3

A claims portfolio has a small number of very large losses that materially affect aggregate results. Which presentation can help users distinguish the underlying attritional experience from the influence of those large losses?

  1. AReport only the largest individual claim
  2. BPresent results both including and excluding large losses, with a clear definition of the treatment
  3. CReplace all large losses with the portfolio average without disclosure
  4. DRemove the affected accident years from every analysis
Show answerCorrect answer: B

Showing results on both a total and an appropriately defined large-loss-excluded basis can clarify how large claims influence aggregate patterns. The treatment should be disclosed, and the excluded amount should not be hidden or silently replaced.

Question 4

An actuary estimates a reserve using a model that assumes claim counts follow a Poisson distribution. Which feature is characteristic of that assumption?

  1. AThe variance of the count equals its mean
  2. BThe count must be a continuous variable
  3. CEvery claim must have the same severity
  4. DThe count variance is necessarily zero
Show answerCorrect answer: A

For a Poisson random variable, the mean and variance are equal. This assumption is often used as a simple count model, though its suitability should be assessed against the portfolio data.

Question 5

A company has a large number of claims with small individual amounts. Which data diagnostic is especially useful before using aggregate historical losses to project future amounts?

  1. ACheck for changes in claim coding, coverage, and data completeness across periods
  2. BRank claims by claimant name
  3. CReplace missing values with zero in every field
  4. DUse only the most recent month of data
Show answerCorrect answer: A

Changes in coding, coverage, or completeness can create artificial shifts in observed aggregate losses and undermine comparisons over time. Data diagnostics should identify such inconsistencies before projection methods are applied.

Question 6

When evaluating a loss reserve estimate, an actuary finds that a few unusually large claims account for a substantial portion of the observed losses. Which analytical step is most useful?

  1. AAssess the large claims separately or test their influence on aggregate methods, while ensuring they are not omitted from the total estimate.
  2. BRemove all large claims from the data without replacement or explanation.
  3. CAssume large claims will never develop further once reported.
  4. DReplace the observed losses with premium because individual claims are unpredictable.
Show answerCorrect answer: A

Large claims can exert disproportionate influence on aggregate development patterns. Reviewing them separately or testing their impact can improve understanding, while the estimate must still account for their expected ultimate cost.

Question 7

A reserve review identifies a material difference between the valuation date and the date through which claim data were received. What is the principal reason to assess the intervening period?

  1. ATo determine whether subsequent information indicates events or changes relevant to the valuation-date estimate
  2. BTo replace all valuation-date data with the latest available totals
  3. CTo ensure that no claim payments occurred after the valuation date
  4. DTo convert the unpaid estimate into a premium estimate
Show answerCorrect answer: A

Information emerging after the valuation date may help assess conditions existing at that date, while events arising later may need separate treatment. The actuary should evaluate relevance rather than automatically substitute later data for the valuation-date information.

How to use this practice test

The free practice bank contains 50 published questions; each session presents up to 20 random questions. Work through a session to test your interpretation of loss development, unpaid amounts, claim data, and reinsurance scenarios, then use the results to identify concepts that need further review.

Preparation tips

  • For each ultimate-loss estimate, reconcile paid losses to date with the implied unpaid amount, using consistent valuation dates and definitions.
  • Compare paid-loss development estimates with the data they rely on; note how development patterns and changes in claim reporting or settlement could affect projections.
  • Distinguish reported-but-unreserved claims from incurred-but-not-reported losses, and identify which reserve component a scenario describes.
  • When large claims influence aggregate results, examine their effect separately and consider whether an attritional presentation clarifies underlying experience.
  • For reinsurance scenarios, identify the per-occurrence retention and distinguish the amount relevant to the insurer’s net cost from other contract terms.
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