SOA Pricing and Introduction to Valuation and Risk Management Examination Practice Test
The SOA Pricing and Introduction to Valuation and Risk Management Examination practice page covers actuarial calculations and reasoning related to insurance premiums, financial values, and uncertainty. The available questions use examples involving deductibles and coinsurance, present values, expected losses, balance-sheet amounts, coverage ratios, assumption sensitivity, and experience-based pricing.
Exam overview
About the SOA Pricing and Introduction to Valuation and Risk Management Exam… Exam
Pricing analysis translates coverage terms, claim experience, and assumptions into premiums that reflect expected costs. The practice question vocabulary includes calculating an insurer’s payment after a deductible and coinsurance, and considering how higher claim frequency for a risk group may affect an experience-rated premium. Valuation questions involve discounting future cash flows and recognizing how changes in interest rates affect present value. Risk-management calculations include variance for a simple loss distribution and sensitivity testing to identify how plausible assumption changes affect an estimated liability. Basic financial measures, such as asset-to-liability coverage and the current ratio, help interpret an insurer’s financial position. These exercises require distinguishing inputs from outputs, applying formulas consistently, and explaining what a calculation indicates for pricing or valuation decisions.
Sample Practice Questions
Review a selection from this exam's published US Practice Tests practice bank.
An insurer has $2 million of assets and $1.5 million of liabilities under a specified valuation basis. What is its asset-to-liability coverage ratio?
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Correct answer: CThe asset-to-liability coverage ratio is assets divided by liabilities: $2 million ÷ $1.5 million ≈ 1.33.
An insurer is choosing between two proposed pricing assumptions for a policy feature. One assumption has a larger estimated effect on the indicated premium. Which assumption should generally receive higher priority for validation?
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Correct answer: AA practical validation approach considers both uncertainty and materiality. An assumption with a larger potential impact on indicated premiums can create greater consequences if it is wrong, so it is often a higher priority for review.
A policy has a $200 deductible and 20% coinsurance. For an eligible covered loss of $1,200, the insured pays the deductible plus 20% of the amount remaining after the deductible. How much does the insurer pay?
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Correct answer: BAfter the $200 deductible, $1,000 remains. The insured pays 20% of that, or $200, so the insurer pays $1,000 − $200 = $800. Wait: applying the stated allocation, insurer payment is 80% of $1,000, which is $800.
An insurer records a premium receivable of $80,000 and an unpaid-claims liability of $55,000. Ignoring other balance-sheet items, what is the net contribution of these two items to equity?
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Correct answer: BAn asset increases equity and a liability reduces it. The net contribution is $80,000 − $55,000 = $25,000.
A valuation model produces an estimated liability of $4.0 million. A sensitivity test shows that a plausible change in an assumption raises the estimate to $4.6 million. What does this result primarily indicate?
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Correct answer: BThe $600,000 change under a plausible assumption variation indicates sensitivity of the valuation to that input or scenario. It does not, by itself, establish that either estimate is biased or incorrect.
An insurer expects to collect a premium of $1,000 in one year. If the annual effective interest rate is 5%, what is the present value of that certain receipt?
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Correct answer: BDiscount one year at 5%: $1,000 ÷ 1.05 ≈ $952.38.
Under a simplified one-year model, an insurer has a 1% probability of a $100,000 loss and otherwise has no loss. What is the variance of the loss amount?
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Correct answer: CThe mean loss is 0.01 × $100,000 = $1,000. The second moment is 0.01 × ($100,000)² = $100,000,000. Variance equals the second moment minus the squared mean: $100,000,000 − $1,000,000 = $99,000,000.
How to use this practice test
Access the free practice bank for this exam and answer a session of up to 20 randomly selected questions. After the session, review your results to identify calculation steps or concepts to revisit, such as discounting, loss variability, coverage provisions, or sensitivity to assumptions.
Preparation tips
- For deductible and coinsurance problems, calculate the amount remaining after the deductible before applying the coinsurance percentage; distinguish the insured’s share from the insurer’s payment.
- Practice present-value calculations using the stated effective interest rate and cash-flow timing, and check how a higher discount rate changes value when cash flows are fixed.
- For discrete loss distributions, calculate expected loss and variance from each outcome’s probability rather than treating the maximum loss as the expected loss.
- Interpret sensitivity tests by comparing the baseline estimate with the estimate under the changed assumption; note the direction and size of the change.
- Connect experience rating to the evidence provided: identify whether the risk group’s frequency or severity differs and how that information could influence the indicated premium.