CIC INSURANCE COMPANY OPERATIONS 2025/2026
QUESTIONS AND ANSWERS GUARANTEE A+
✔✔Explain the fundamental elements of an insurance company when considering its
risk appetite - ✔✔a. Companies will not have the same risk appetite in all areas
b. Providing levels of authority in underwriting and claims may aid in achieving results
desired
c. What is the maximum amount of coverage limits a company will write without
purchasing reinsurance
d. How much surplus will an organization expose to a catastrophe, such as earthquake
or hurricane (usually defined as not more than X% of surplus to a Xyear event)
e. What premium to surplus, loss ratios, expense ratios and combined ratios is the
organization willing to accept
f. Risk can be spread
1) Geographically
2) Across lines of business
3) Over time
✔✔Describe the essentials of compliance and control and the issues they address -
✔✔Most companies have operating guidelines or best practices that establish how a
company wants to perform various functions
Compliance and control are both internal to the insurer, however essentially address
two separate issues
a. Compliance deals with whether the company is meeting the regulatory/statutory
requirements that exist in the territories where the company does business
b. Control makes certain a company is following its own internal practices and
procedures
✔✔Identify and describe the types of distribution methods used by insurance
companies to market and sell their products and the factors to be considered when
determining their strategies - ✔✔Types:
1. Independent Agency System
2. Exclusive Agents
3. Company Employees/Direct Marketing
4. Online Fulfillment
5. hybrid or conversion
,Factors to be considered
a. Expense
b. Control (authority and expertise)
c. Desired market penetration
d. Scalability
✔✔primary role and purpose of actuaries - ✔✔1. Actuaries have expertise in
mathematical computations to help manage risk by evaluating the ultimate value of
losses and Incurred But Not Reported (IBNR) reserves
2. By knowing realistic future claim payouts and operating expenses, the insurance
company is better able to set adequate rates
3. Provide statements of actuarial opinion, or actuarial certification, with regulators for
reserve adequacy
4. Support insurance program options
5. May provide support with predictive modeling and catastrophe (CAT) management
✔✔State the primary functions of actuaries of an insurance company - ✔✔1. Two
functions - different but highly interconnected
a. Reserving
b. Rate making (pricing)
2. Reserving
- Forecasting the ultimate losses
- 70% of insurance company expenses come from claims so accuracy is important
- insurance companies do not know the true cost of goods sold until years later
- actuaries quantify evaluate and monitor estimates of unpaid losses
3. Rate making
- close connection between actuarial rates and regulation
- avoid adverse selection (a situation where less desirable risks are unintentionally
written by an insurance carrier)
✔✔State the two components of IBNR (Incurred But Not Reported) and explain their
application - ✔✔a. Pure IBNR = Losses that have happened, but haven't yet been
reported
b. Broad/Bulk IBNR = Reported claims where the full severity hasn't yet been
discovered
✔✔allocated loss adjustment expense (ALAE)
unallocated loss adjustment expense (ULAE)
, expected losses - ✔✔- an expense directly assigned to or that arises from a particular
claim; examples of ALAE include court fees and outside legal counsel. Also known as
allocated loss expense.
- salaries, overhead and other related adjustment expenses not specifically allocated or
charged to a particular claim. Some insurance companies apply a nominal flat charge to
each claim reported to represent a portion of ULAE, but the amount is small relative to
most types of ALAE.
- projection of the frequency and/or severity of losses based on loss history, probability
distributions and statistics; the expected loss projection is commonly called a loss pick.
✔✔loss trending
policy year
accident year
calendar year - ✔✔- adjusting historical losses to account for trends so that the ultimate
value is current and meaningful; loss trends take into account potential change in
frequency, change in the cost per claim (including inflation), and change in exposure;
loss trend factors are multiplied by the actual historical losses to trend losses; utilized
when creating loss projections to convert all historical losses into today's values.
- based on policy effective dates. Loss dollars from a particular claim will be assigned to
a policy year based on the effective date of the policy which generated the claim.
premium dollars are readily assigned to a policy year, again based on the effective date
of the policy.
- based on accident dates. Loss dollars from a particular claim will be assigned to an
accident year based on the accident date of the claim. The earned premium is derived
from the calendar year written premium for the accident year being measured.
- based on accounting activity dates. Paid loss dollars from a particular claim may be
assigned to several calendar years, depending on when each payment was actually
made. Incurred loss dollars from a particular claim may be assigned to several calendar
years, depending on a combination of when payments were made and when reserve
changes were made.
✔✔purpose of loss projections (loss development) - ✔✔1. A loss triangle is a tool
commonly used by actuaries to organize data in order to identify and analyze patterns in
the data (may be referred to as loss development triangle)
2. Used to determine loss development for a given risk (account, state, territory, class of
business, etc.)
3. Captures changes in the ultimate value resulting from natural claim development
(both pure and bulk IBNR)
QUESTIONS AND ANSWERS GUARANTEE A+
✔✔Explain the fundamental elements of an insurance company when considering its
risk appetite - ✔✔a. Companies will not have the same risk appetite in all areas
b. Providing levels of authority in underwriting and claims may aid in achieving results
desired
c. What is the maximum amount of coverage limits a company will write without
purchasing reinsurance
d. How much surplus will an organization expose to a catastrophe, such as earthquake
or hurricane (usually defined as not more than X% of surplus to a Xyear event)
e. What premium to surplus, loss ratios, expense ratios and combined ratios is the
organization willing to accept
f. Risk can be spread
1) Geographically
2) Across lines of business
3) Over time
✔✔Describe the essentials of compliance and control and the issues they address -
✔✔Most companies have operating guidelines or best practices that establish how a
company wants to perform various functions
Compliance and control are both internal to the insurer, however essentially address
two separate issues
a. Compliance deals with whether the company is meeting the regulatory/statutory
requirements that exist in the territories where the company does business
b. Control makes certain a company is following its own internal practices and
procedures
✔✔Identify and describe the types of distribution methods used by insurance
companies to market and sell their products and the factors to be considered when
determining their strategies - ✔✔Types:
1. Independent Agency System
2. Exclusive Agents
3. Company Employees/Direct Marketing
4. Online Fulfillment
5. hybrid or conversion
,Factors to be considered
a. Expense
b. Control (authority and expertise)
c. Desired market penetration
d. Scalability
✔✔primary role and purpose of actuaries - ✔✔1. Actuaries have expertise in
mathematical computations to help manage risk by evaluating the ultimate value of
losses and Incurred But Not Reported (IBNR) reserves
2. By knowing realistic future claim payouts and operating expenses, the insurance
company is better able to set adequate rates
3. Provide statements of actuarial opinion, or actuarial certification, with regulators for
reserve adequacy
4. Support insurance program options
5. May provide support with predictive modeling and catastrophe (CAT) management
✔✔State the primary functions of actuaries of an insurance company - ✔✔1. Two
functions - different but highly interconnected
a. Reserving
b. Rate making (pricing)
2. Reserving
- Forecasting the ultimate losses
- 70% of insurance company expenses come from claims so accuracy is important
- insurance companies do not know the true cost of goods sold until years later
- actuaries quantify evaluate and monitor estimates of unpaid losses
3. Rate making
- close connection between actuarial rates and regulation
- avoid adverse selection (a situation where less desirable risks are unintentionally
written by an insurance carrier)
✔✔State the two components of IBNR (Incurred But Not Reported) and explain their
application - ✔✔a. Pure IBNR = Losses that have happened, but haven't yet been
reported
b. Broad/Bulk IBNR = Reported claims where the full severity hasn't yet been
discovered
✔✔allocated loss adjustment expense (ALAE)
unallocated loss adjustment expense (ULAE)
, expected losses - ✔✔- an expense directly assigned to or that arises from a particular
claim; examples of ALAE include court fees and outside legal counsel. Also known as
allocated loss expense.
- salaries, overhead and other related adjustment expenses not specifically allocated or
charged to a particular claim. Some insurance companies apply a nominal flat charge to
each claim reported to represent a portion of ULAE, but the amount is small relative to
most types of ALAE.
- projection of the frequency and/or severity of losses based on loss history, probability
distributions and statistics; the expected loss projection is commonly called a loss pick.
✔✔loss trending
policy year
accident year
calendar year - ✔✔- adjusting historical losses to account for trends so that the ultimate
value is current and meaningful; loss trends take into account potential change in
frequency, change in the cost per claim (including inflation), and change in exposure;
loss trend factors are multiplied by the actual historical losses to trend losses; utilized
when creating loss projections to convert all historical losses into today's values.
- based on policy effective dates. Loss dollars from a particular claim will be assigned to
a policy year based on the effective date of the policy which generated the claim.
premium dollars are readily assigned to a policy year, again based on the effective date
of the policy.
- based on accident dates. Loss dollars from a particular claim will be assigned to an
accident year based on the accident date of the claim. The earned premium is derived
from the calendar year written premium for the accident year being measured.
- based on accounting activity dates. Paid loss dollars from a particular claim may be
assigned to several calendar years, depending on when each payment was actually
made. Incurred loss dollars from a particular claim may be assigned to several calendar
years, depending on a combination of when payments were made and when reserve
changes were made.
✔✔purpose of loss projections (loss development) - ✔✔1. A loss triangle is a tool
commonly used by actuaries to organize data in order to identify and analyze patterns in
the data (may be referred to as loss development triangle)
2. Used to determine loss development for a given risk (account, state, territory, class of
business, etc.)
3. Captures changes in the ultimate value resulting from natural claim development
(both pure and bulk IBNR)
