CDFA EXAM STUDY GUIDE TERMINAL
CERTIFICATION EVALUATION COMPLETE
QUESTIONS WITH FULL SOLUTION
ALREADY PASSED
⩥ What is the goal of ratemaking?.
Answer: to assure that the fundamental insurance equation is
appropriately balance
aka premium is expected to cover all costs and achieve underwriting
profits
⩥ Two key points to consider in achieving a successful ratemaking.
Answer: 1. Ratemaking is prospective
2. Balance should be attained at the aggregate and individual levels
⩥ Pure Premium.
Answer: aka loss cost or burning cost - the rate necessary to cover loss
and LAE in the premium equation
⩥ Loss Ratio.
,Answer: a measure of the portion of each premium dollar used to pay
losses
= (Incurred Losses + Loss Adjustment Expense)/Earned premium
⩥ Loss Adjustment Expense Ratio.
Answer: compares the amount of claim-related expenses to total loss and
use it to determine if costs associated with claims settlement procedures
are stable and in line with competitors
= Loss Adjustment Expenses / Losses
⩥ Underwriting Expense Ratio.
Answer: measures the portion of each premium dollar used to pay for
the operating expenses of the insurance company
=UW expenses / Earned Premium
⩥ Combined Ratio.
Answer: a primary measure of the profitability of a book of business
= (Losses + LAE + UW Expenses) / Earned Premium
,⩥ Product Management Roles and Responsibilities.
Answer: 1. Product development
2. Could be one of the three:
1. Development of contracts only
2. Development of contracts and pricing
3. Development of contracts, pricing and coordination with other
departments in the company
⩥ Purpose of Product Development and Management.
Answer: 1. Develop new marketable products and maintain existing
products
2. Develop and manage products within regulatory compliance
requirements
3. Establish and monitor pricing that allows for profitable growth
4. Monitor for need to modify or create supporting endorsement forms
5. Coordinate with other departments
⩥ The 4 steps to Developing New Products.
Answer: 1. Concept/Idea
, 2. Feasibility/Study
3. Design/Develop
4. Implementation/Launch
⩥ Step 1 - Concept/Idea.
Answer: This can be done by internal departments by:
-Underwriting: request and demand for needed coverage
-Claims: trend of uncovered claims
-Sales and Marketing: marketplace demands
⩥ Step 2 - Feasibility/Study.
Answer: This is done by studying industry data and has three questions
to ask:
1. Industry competition - What does the competitor look like in the
market place?
2. Internal Capabilities - What are we capable of doing?
3. Forecasting - Is their a growth potential?
CERTIFICATION EVALUATION COMPLETE
QUESTIONS WITH FULL SOLUTION
ALREADY PASSED
⩥ What is the goal of ratemaking?.
Answer: to assure that the fundamental insurance equation is
appropriately balance
aka premium is expected to cover all costs and achieve underwriting
profits
⩥ Two key points to consider in achieving a successful ratemaking.
Answer: 1. Ratemaking is prospective
2. Balance should be attained at the aggregate and individual levels
⩥ Pure Premium.
Answer: aka loss cost or burning cost - the rate necessary to cover loss
and LAE in the premium equation
⩥ Loss Ratio.
,Answer: a measure of the portion of each premium dollar used to pay
losses
= (Incurred Losses + Loss Adjustment Expense)/Earned premium
⩥ Loss Adjustment Expense Ratio.
Answer: compares the amount of claim-related expenses to total loss and
use it to determine if costs associated with claims settlement procedures
are stable and in line with competitors
= Loss Adjustment Expenses / Losses
⩥ Underwriting Expense Ratio.
Answer: measures the portion of each premium dollar used to pay for
the operating expenses of the insurance company
=UW expenses / Earned Premium
⩥ Combined Ratio.
Answer: a primary measure of the profitability of a book of business
= (Losses + LAE + UW Expenses) / Earned Premium
,⩥ Product Management Roles and Responsibilities.
Answer: 1. Product development
2. Could be one of the three:
1. Development of contracts only
2. Development of contracts and pricing
3. Development of contracts, pricing and coordination with other
departments in the company
⩥ Purpose of Product Development and Management.
Answer: 1. Develop new marketable products and maintain existing
products
2. Develop and manage products within regulatory compliance
requirements
3. Establish and monitor pricing that allows for profitable growth
4. Monitor for need to modify or create supporting endorsement forms
5. Coordinate with other departments
⩥ The 4 steps to Developing New Products.
Answer: 1. Concept/Idea
, 2. Feasibility/Study
3. Design/Develop
4. Implementation/Launch
⩥ Step 1 - Concept/Idea.
Answer: This can be done by internal departments by:
-Underwriting: request and demand for needed coverage
-Claims: trend of uncovered claims
-Sales and Marketing: marketplace demands
⩥ Step 2 - Feasibility/Study.
Answer: This is done by studying industry data and has three questions
to ask:
1. Industry competition - What does the competitor look like in the
market place?
2. Internal Capabilities - What are we capable of doing?
3. Forecasting - Is their a growth potential?
