Casualty Actuarial Society (CAS) Actuarial Certification — Questions and Answers

Question 1: In a loss reserve analysis, what is an 'accident year' loss triangle?

A table showing the number of accidents by month within a calendar year
A graph plotting loss frequency against loss severity for a given year
A matrix displaying cumulative losses by the year the loss occurred and the age at which they were evaluated (Correct answer)
A schedule comparing reported losses to paid losses at each quarter end

Correct answer: A matrix displaying cumulative losses by the year the loss occurred and the age at which they were evaluated

An accident year triangle organizes cumulative losses (or claims) by accident year (rows) and development age (columns), enabling actuaries to observe and project development patterns.

Question 2: In actuarial operations, what is a 'data quality scorecard' primarily used for?

Systematically measuring and monitoring the accuracy, completeness, and timeliness of data used in actuarial analyses (Correct answer)
Ranking insurance companies by data sophistication for regulatory purposes
Comparing the quality of external data vendors
Evaluating the performance of individual actuaries

Correct answer: Systematically measuring and monitoring the accuracy, completeness, and timeliness of data used in actuarial analyses

A data quality scorecard tracks key dimensions of data quality (accuracy, completeness, timeliness, consistency) to ensure actuarial analyses are based on reliable inputs.

Question 3: Which reinsurance pricing method calculates the reinsurer's expected loss cost based on historical loss experience adjusted for trend and development?

Index-linked pricing
Payback period method
Experience rating (burning cost method) (Correct answer)
Exposure rating

Correct answer: Experience rating (burning cost method)

The burning cost (experience rating) method prices reinsurance by analyzing historical losses that exceeded the retention, trended and developed to current levels, to estimate future reinsurer costs.

Question 4: Why is stakeholder management important in projects?

Because stakeholder support and engagement are critical to project success (Correct answer)
It is only important for government projects
Stakeholders have no impact on projects
Only to fulfill a documentation requirement

Correct answer: Because stakeholder support and engagement are critical to project success

Identifying and managing stakeholder expectations helps ensure support, resources, and alignment with project goals.

Question 5: Which of the following best describes 'poka-yoke' in process design?

A Japanese term for continuous improvement
A scheduling technique for resource allocation
A visual management system using color-coded charts
An error-proofing mechanism that prevents mistakes or makes them immediately obvious (Correct answer)

Correct answer: An error-proofing mechanism that prevents mistakes or makes them immediately obvious

Poka-yoke refers to mistake-proofing mechanisms designed into a process to prevent errors from occurring or to immediately detect them when they do.

Question 6: What is the difference between risk avoidance and risk acceptance?

Avoidance eliminates the risk entirely; acceptance acknowledges it without active response (Correct answer)
They are the same concept
Acceptance means the risk is transferred to another party
Avoidance is always preferred to acceptance

Correct answer: Avoidance eliminates the risk entirely; acceptance acknowledges it without active response

Risk avoidance changes plans to eliminate the risk, while risk acceptance consciously decides to proceed despite the risk.

Question 7: Which precept of the CAS Code of Professional Conduct addresses the duty to maintain confidentiality of client information?

Precept 9 (Correct answer)
Precept 4
Precept 13
Precept 1

Correct answer: Precept 9

Precept 9 obligates actuaries to keep client information confidential except in specific circumstances such as legal or professional requirements.

Question 8: Which of the following correctly describes the format of CAS Exam 5 (Basic Techniques for Ratemaking)?

Oral examination before a panel
Written-answer only
A combination of multiple-choice and written-answer questions (Correct answer)
Multiple-choice only

Correct answer: A combination of multiple-choice and written-answer questions

CAS upper-level exams, including Exam 5, use a mixed format combining multiple-choice questions and written-answer questions.

Question 9: Which organization sets continuing education requirements for CAS members?

National Association of Insurance Commissioners (NAIC)
Casualty Actuarial Society (CAS) (Correct answer)
Society of Actuaries (SOA)
American Academy of Actuaries (AAA)

Correct answer: Casualty Actuarial Society (CAS)

The Casualty Actuarial Society (CAS) is the organization that sets continuing education requirements for its members. As the professional body dedicated to property and casualty actuaries, the CAS develops specific CE standards tailored to the unique needs and evolving landscape of the casualty actuarial field. This ensures its members maintain relevant and up-to-date expertise.

Question 10: In actuarial ratemaking, what does 'on-leveling' premium data accomplish?

Adjusting historical premium to reflect what it would have been at current rate levels (Correct answer)
Projecting future premium volume based on historical growth trends
Removing the effect of inflation from historical loss data
Credibility-weighting the insurer's own experience against industry data

Correct answer: Adjusting historical premium to reflect what it would have been at current rate levels

On-leveling (or bringing premiums to current level) ensures historical premiums are comparable to current rates before computing historical loss ratios.

Question 11: A candidate who earns ACAS status and then fails to complete Fellowship requirements within the required timeframe may face which outcome?

Revocation of ACAS status after a defined grace period
Mandatory retaking of all preliminary exams
No consequence; ACAS is a permanent credential (Correct answer)
Automatic upgrade to FCAS

Correct answer: No consequence; ACAS is a permanent credential

ACAS is a permanent credential; there is no time limit imposed by CAS requiring completion of FCAS after earning ACAS.

Question 12: How is claim frequency defined in actuarial loss modeling?

The number of claims per unit of exposure (Correct answer)
The speed of claim settlement
The average dollar size of each loss
Total losses paid in a period

Correct answer: The number of claims per unit of exposure

Frequency is the rate of claim occurrence measured as the number of claims divided by the exposure base (e.g., claims per 100 earned car-years).

Question 13: What is Value at Risk (VaR) as applied in casualty actuarial risk modeling?

The expected value of losses in the worst-case scenario
The maximum loss not exceeded with a specified probability over a defined time horizon (Correct answer)
The variance of the loss distribution for a given portfolio
The ratio of tail losses to expected losses at a given return period

Correct answer: The maximum loss not exceeded with a specified probability over a defined time horizon

VaR at the 99th percentile means there is a 1% chance losses will exceed that threshold, providing a concise summary of downside risk used in capital modeling.

Question 14: What must CAS candidates complete before sitting for Exam 5, in addition to prior exams?

CAS Online Courses 1 and 2 covering P&C topics (Correct answer)
Professionalism seminar only
No additional requirements before Exam 5
Programming in R course

Correct answer: CAS Online Courses 1 and 2 covering P&C topics

Candidates must complete CAS Online Course 1 and Online Course 2, which introduce property-casualty insurance fundamentals, before sitting for Exam 5.

Question 15: Which statistical topics are primarily covered in CAS Exam MAS-II?

Insurance regulation
Advanced statistics including time series and credibility (Correct answer)
Financial economics
Ratemaking fundamentals

Correct answer: Advanced statistics including time series and credibility

MAS-II covers advanced statistical modeling including time series analysis, credibility theory, and simulation methods used in actuarial practice.

Question 16: Under the CAS continuing education requirements, what is the minimum number of continuing education (CE) hours required for a Fellow of the CAS in a two-year period?

30 hours (Correct answer)
20 hours
15 hours
60 hours

Correct answer: 30 hours

CAS Fellows must complete at least 30 CE hours every two-year period to maintain compliance with professionalism requirements.

Question 17: An aggregate stop-loss reinsurance contract would most likely be used to protect against which scenario?

Losses from a single line of business exceeding an occurrence limit
A single extremely large individual claim
High frequency of small claims leading to adverse aggregate loss ratios (Correct answer)
Individual risks that exceed the primary insurer's underwriting capacity

Correct answer: High frequency of small claims leading to adverse aggregate loss ratios

Aggregate stop-loss reinsurance protects the ceding company when the total (aggregate) losses over a period exceed a specified amount, making it ideal for high-frequency, low-severity loss accumulation risk.

Question 18: Which of the following operational risks would be classified under the Basel II / insurance ERM 'execution, delivery, and process management' category?

A fire destroying a company data center
A vendor system outage disrupting claims processing
A data entry error causing a policy to be mispriced and issued (Correct answer)
A rogue trader causing unauthorized trading losses

Correct answer: A data entry error causing a policy to be mispriced and issued

Mispricing due to data entry errors in policy issuance falls under execution and process management failures, which involve internal process breakdowns.

Question 19: Which statement best describes the concept of 'risk transfer' as it relates to whether a reinsurance contract qualifies for reinsurance accounting treatment under GAAP?

Risk transfer is satisfied as long as the contract specifies a loss limit and an attachment point
GAAP requires risk transfer only for proportional treaties, not for excess of loss structures
The reinsurance contract must expose the reinsurer to a reasonable possibility of significant loss for genuine risk transfer to exist (Correct answer)
The reinsurer must assume at least 50% of the original policy's premium for risk transfer to exist

Correct answer: The reinsurance contract must expose the reinsurer to a reasonable possibility of significant loss for genuine risk transfer to exist

Under FASB ASC 944, a reinsurance contract achieves risk transfer — and thus qualifies for reinsurance accounting — only if it exposes the reinsurer to a reasonable possibility of a significant loss, preventing the use of finite or financial reinsurance to manipulate balance sheets.

Question 20: In stochastic loss reserving, what advantage does a simulation model provide over a deterministic point estimate?

It eliminates the need for actuarial judgment in selecting development patterns
It produces a full probability distribution of reserve outcomes, quantifying reserve uncertainty and enabling risk-based capital assessment (Correct answer)
It removes the need for a valuation actuary to sign the reserve opinion
It guarantees that the reserve estimate will fall within statutory requirements

Correct answer: It produces a full probability distribution of reserve outcomes, quantifying reserve uncertainty and enabling risk-based capital assessment

Stochastic reserving methods like bootstrapping or the Mack method generate ranges and percentiles around the reserve estimate, informing capital adequacy and risk management decisions.

Question 21: What is a 'copula' used for in multivariate actuarial modeling?

To model the dependence structure between multiple random variables separately from their individual marginal distributions (Correct answer)
To aggregate individual policy losses into a portfolio-level loss distribution
To combine separate frequency and severity distributions into a compound distribution
To fit a parametric distribution to empirical loss data using maximum likelihood

Correct answer: To model the dependence structure between multiple random variables separately from their individual marginal distributions

Copulas allow actuaries to model correlations and tail dependence between lines of business or risk factors independently of the marginal distributions, critical for enterprise risk management.

Question 22: In experience rating for workers' compensation, what does the 'experience modification factor' (EMod) measure?

The insurer's profitability on the account relative to class average
The percentage change in workers' comp premium from the prior policy year
The frequency of OSHA citations relative to industry peers
The ratio of an employer's actual loss experience to the expected losses for their industry class, used to adjust the standard premium (Correct answer)

Correct answer: The ratio of an employer's actual loss experience to the expected losses for their industry class, used to adjust the standard premium

An EMod above 1.0 indicates worse-than-average experience and results in a premium surcharge, while an EMod below 1.0 reflects better-than-average experience and earns a credit.

Question 23: What is the primary actuarial concern with 'loss reserve discounting' under Statutory Accounting Principles for property-casualty insurers?

SAP mandates discounting only for short-tail lines with payment patterns under 3 years
SAP allows unlimited discretionary discounting at management's election
SAP requires all P&C reserves to be discounted at the risk-free rate
SAP generally prohibits discounting of P&C reserves to maintain conservatism, with limited exceptions (Correct answer)

Correct answer: SAP generally prohibits discounting of P&C reserves to maintain conservatism, with limited exceptions

SAP generally does not permit discounting of unpaid loss reserves for property-casualty lines (with narrow exceptions like workers' comp tabular reserves) because undiscounted reserves are more conservative and protective of solvency.

Question 24: What is the purpose of the NAIC's Own Risk and Solvency Assessment (ORSA) requirement for large insurers?

To mandate third-party validation of all actuarial reserve opinions
To establish minimum premium-to-surplus ratios for all lines of business
To have insurers internally assess their risk profile and capital needs relative to their risk appetite (Correct answer)
To require external auditors to certify reserve adequacy annually

Correct answer: To have insurers internally assess their risk profile and capital needs relative to their risk appetite

ORSA requires large insurers to conduct and document their own forward-looking assessment of material risks and the capital needed to remain solvent under various scenarios.

Question 25: What is the primary purpose of reinsurance for a primary insurer?

To replace the primary insurer's capital requirements
To transfer a portion of risk to another insurer to reduce exposure and stabilize results (Correct answer)
To eliminate underwriting profit volatility entirely
To avoid regulatory oversight of large claims

Correct answer: To transfer a portion of risk to another insurer to reduce exposure and stabilize results

Reinsurance allows primary insurers to transfer part of their risk to a reinsurer, which stabilizes underwriting results and reduces the financial impact of large or catastrophic losses.

Question 26: Under A.M. Best's analysis of a reinsurance program, which factor would most increase concerns about the ceding company's credit risk from reinsurance recoverables?

Heavy concentration of recoverables with one low-rated reinsurer (Correct answer)
High diversification of reinsurers by geography
Using only proportional treaties rather than excess of loss
Purchasing reinsurance through a licensed broker

Correct answer: Heavy concentration of recoverables with one low-rated reinsurer

Concentration of reinsurance recoverables with a single low-rated reinsurer creates significant counterparty credit risk, as the ceding company may not collect those funds if the reinsurer becomes insolvent.

Question 27: What does 'IBNR' stand for and what does it represent in loss reserving?

Incurred But Not Reported; losses that have occurred but have not yet been reported to the insurer (Correct answer)
Identified But Not Reserved; claims under investigation without established reserves
Indexed But Not Restated; losses not adjusted for inflation trends
Incurred But Not Resolved; claims reported but not yet settled

Correct answer: Incurred But Not Reported; losses that have occurred but have not yet been reported to the insurer

IBNR reserves are set aside for losses that have occurred during the policy period but have not yet been reported to the insurer, a critical component of total reserves.

Question 28: A risk with low frequency and high severity is best handled through which risk management technique?

Loss prevention programs
Risk avoidance
Risk transfer via insurance (Correct answer)
Risk retention

Correct answer: Risk transfer via insurance

Low-frequency, high-severity risks are prime candidates for insurance transfer because catastrophic losses are rare but devastating when they occur.

Question 29: What is 'tail value at risk' (TVaR), also called Conditional Tail Expectation (CTE)?

The maximum probable loss at a specified return period
The ratio of catastrophe losses to total losses above a threshold
The standard deviation of losses in the upper tail of the distribution
The expected value of losses given that losses exceed the VaR threshold (Correct answer)

Correct answer: The expected value of losses given that losses exceed the VaR threshold

TVaR/CTE is preferred over VaR in many actuarial applications because it captures the severity of extreme losses beyond the threshold, not just their probability.

Question 30: What is the purpose of a deductible in a property and casualty insurance policy?

To comply with state minimum coverage requirements
To reduce moral hazard and share risk between insurer and insured (Correct answer)
To penalize insureds who file frequent claims
To increase premium revenue for the insurer

Correct answer: To reduce moral hazard and share risk between insurer and insured

Deductibles reduce moral hazard by ensuring insureds bear some financial responsibility, which discourages careless behavior and small nuisance claims.

Question 31: The chain-ladder loss development method organizes data using which structure?

Linear regression tables
Scatter plots
Bar charts
Loss development triangles (Correct answer)

Correct answer: Loss development triangles

The chain-ladder method arranges cumulative loss data in development triangles by accident year and development period to project losses to ultimate.

Question 32: When an actuary relies on data provided by others, what does ASOP No. 23 require?

The actuary must independently verify all data before use
The actuary must obtain a written certification from the data provider
The actuary is fully absolved of responsibility for any data errors
The actuary must disclose reliance on the data and note any material deficiencies found (Correct answer)

Correct answer: The actuary must disclose reliance on the data and note any material deficiencies found

ASOP No. 23 requires actuaries to disclose reliance on data supplied by others and to note any material data deficiencies discovered during review.

Question 33: A candidate registering for a CAS exam who has a documented disability may request accommodations. What is the standard process?

The testing center independently decides on accommodations without CAS involvement
The candidate must submit a formal request with documentation to CAS well before the registration deadline (Correct answer)
Disability accommodations are only available for Fellowship-level exams
Accommodations are granted automatically upon proof of disability submitted on exam day

Correct answer: The candidate must submit a formal request with documentation to CAS well before the registration deadline

Candidates must apply for accommodations in advance and submit supporting documentation through the CAS accommodation request process.

Question 34: ASOP No. 20 (Discounting of Property and Casualty Unpaid Claim Estimates) applies when an actuary discounts unpaid claim estimates. Which is a required disclosure under this standard?

A comparison to undiscounted reserves from all prior years
The discount rates used and the payment pattern assumed (Correct answer)
The expected future inflation rate for the next 50 years
The names of all claims used to derive the payment pattern

Correct answer: The discount rates used and the payment pattern assumed

ASOP No. 20 requires disclosure of the discount rates and the payment pattern underlying the discounting calculation.

Question 35: A candidate who passes all required exams but has not yet completed VEE requirements will be granted which status?

No recognition until all requirements including VEE are satisfied (Correct answer)
ACAS with a note of pending VEE, but not FCAS
Provisional FCAS for a two-year grace period
Full FCAS membership immediately

Correct answer: No recognition until all requirements including VEE are satisfied

CAS does not award ACAS or FCAS credentials until all requirements, including VEE, are fully satisfied.

Question 36: What is the 'frequency-severity' method in actuarial loss projection?

Separately projecting the number of claims (frequency) and the average cost per claim (severity), then multiplying them to estimate total losses (Correct answer)
Measuring the correlation between accident frequency and accident severity
Analyzing the distribution of large losses versus small losses in a portfolio
A statistical test for goodness-of-fit in a loss distribution model

Correct answer: Separately projecting the number of claims (frequency) and the average cost per claim (severity), then multiplying them to estimate total losses

The frequency-severity method projects ultimate losses by independently analyzing trends and development in claim counts and average claim costs, then combining them.

Question 37: What is the operational significance of 'first-pass yield' (FPY) in an insurance policy issuance process?

The rate at which new business converts from quote to bound policy
The proportion of policy applications processed correctly without requiring rework or correction (Correct answer)
The percentage of policies that generate a profit in their first year
The percentage of policies renewed at first renewal opportunity

Correct answer: The proportion of policy applications processed correctly without requiring rework or correction

First-pass yield measures the percentage of units (applications, policies) that complete a process step correctly the first time without requiring rework, indicating process quality.

Question 38: In actuarial pricing, what is the 'risk load' or 'risk margin' added to the expected loss cost?

The expense load covering underwriting and administrative costs
A discount factor applied to reflect investment income earned on reserves
Additional premium beyond expected losses to compensate for the variability and uncertainty in actual loss outcomes (Correct answer)
The profit target required by the insurer's shareholders

Correct answer: Additional premium beyond expected losses to compensate for the variability and uncertainty in actual loss outcomes

The risk load compensates the insurer for taking on uncertain liabilities; it reflects the cost of capital required to support reserve variability and is separate from the expense and profit loads.

Question 39: What is the 'pure premium' method for calculating insurance rates?

Dividing projected ultimate losses by the number of exposures to derive the average loss cost per exposure unit (Correct answer)
Dividing total premium by the number of policies in force
Multiplying the loss ratio by the current average premium
Calculating the ratio of incurred losses to earned premium

Correct answer: Dividing projected ultimate losses by the number of exposures to derive the average loss cost per exposure unit

The pure premium method directly derives a loss cost per exposure unit, which is then loaded for expenses and profit to produce the final rate.

Question 40: What is 'adverse selection' in the context of property and casualty insurance underwriting?

The tendency for higher-risk individuals to be more likely to seek insurance, skewing the insured pool toward worse-than-average risks (Correct answer)
The phenomenon where safer drivers choose higher deductibles
An underwriter's bias toward approving applications from preferred agents
The deliberate selection of unprofitable accounts by competing carriers

Correct answer: The tendency for higher-risk individuals to be more likely to seek insurance, skewing the insured pool toward worse-than-average risks

Adverse selection occurs because individuals with higher loss probability are more motivated to buy insurance, which can make insurer pricing inadequate if not addressed through underwriting.

Question 41: In the context of CAS research on inflation-sensitive reserving, 'superimposed inflation' differs from general economic inflation because it:

Is measured exclusively through Bureau of Labor Statistics data
Represents claims cost increases beyond general CPI driven by social, legal, or medical utilization factors (Correct answer)
Only affects property lines, not liability lines
Is always negative (deflationary) in nature

Correct answer: Represents claims cost increases beyond general CPI driven by social, legal, or medical utilization factors

Superimposed inflation captures cost escalation specific to insurance claims—nuclear verdicts, medical utilization growth, and attorney involvement—that exceed general price indices.

Question 42: What is the 'risk-based capital' (RBC) ratio and what does it measure?

The percentage of assets held in risk-free government bonds
The ratio of IBNR reserves to total loss reserves
A regulatory solvency measure comparing actual capital to the minimum capital required given an insurer's risk profile (Correct answer)
The ratio of written premiums to invested assets

Correct answer: A regulatory solvency measure comparing actual capital to the minimum capital required given an insurer's risk profile

The RBC ratio compares an insurer's total adjusted capital to its RBC requirement, which reflects underwriting, investment, credit, and operational risks.

Question 43: Which of the following is NOT a VEE-approved topic area required for CAS Fellowship?

Economics
Applied Statistical Methods
Corporate Finance
Actuarial Mathematics (Correct answer)

Correct answer: Actuarial Mathematics

The three VEE topics are Economics, Applied Statistical Methods, and Corporate Finance; Actuarial Mathematics is covered through the exam syllabus, not VEE.

Question 44: Which of the following best describes the Bornhuetter-Ferguson (BF) reserve method?

A weighted blend of the development method and the expected loss method, giving credibility to both reported losses and an a priori expected loss estimate (Correct answer)
A frequency-severity method that multiplies claim counts by average severity
A regression-based method using economic variables to predict ultimate losses
A purely extrapolative method that relies solely on historical loss development patterns

Correct answer: A weighted blend of the development method and the expected loss method, giving credibility to both reported losses and an a priori expected loss estimate

The BF method is valuable for immature accident years where little data exists, balancing observed development patterns with an independent a priori loss estimate.

Question 45: In surplus share reinsurance, the amount ceded is based on which factor?

The amount by which the policy limit exceeds the ceding company's retention line (Correct answer)
The aggregate losses of the portfolio for the year
A fixed percentage applied to all policies
The individual loss amounts as they occur

Correct answer: The amount by which the policy limit exceeds the ceding company's retention line

In surplus share reinsurance, the ceded amount is the portion of the policy limit that exceeds the ceding company's net retention line, so larger policies cede a higher proportion to the reinsurer.

Casualty Actuarial Society (CAS) Actuarial Certification

The CAS credential program certifies actuaries specializing in property/casualty insurance through a series of exams covering ratemaking, loss reserving, actuarial modeling, and professional standards. Candidates earn the ACAS and FCAS designations by passing exams administered via Pearson VUE computer-based testing.

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210 min

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