AIAF 114- CHAPTER #5 PRACTICE
EXAM QUESTIONS WITH COMPLETE
ANSWERS
Incurred but not reported (IBNR) losses include those losses that have occurred but
have not yet been reported as well as a reserve for reported losses that are expected to
develop further. Which of the following methods uses historical relationships between
IBNR reserves and reported losses in IBNR forecasts? - ANSWER-Percentage method
Which one of the following individuals would normally set the level of bulk reserves for
an insurer? - ANSWER-Actuary
Which one of the following statements is true regarding an insurer's total case reserves?
- ANSWER-Reinsurers may supplement the primary insurer's case reserves for their
own financial reporting purposes.
The purpose of loss reserves is to - ANSWER-Estimate the insurer's liability for losses
that have occurred but have not yet been settled.
Primary Insurance Company (PIC) has a large book of first party automobile policies.
Which one of the following would be the best method for PIC to reserve collision losses
that arise from the resulting claims? - ANSWER-Average method
The correct formula for incurred losses is - ANSWER-Incurred Losses = paid losses +
loss reserves + loss adjustment expense reserves.
Primary Insurance Company (PIC) has outstanding loss reserves at the end of the past
year totaling $28 million. During the first quarter of this year PIC's reserves were
reevaluated and were increased to $32 million. Which one of the following best
describes the financial impact of this increase? - ANSWER-Policyholders' surplus will be
reduced.
Which one of the following is an approach used to determine the initial recognition of
losses for the current accident year? - ANSWER-Accrual of estimated incurred losses
based on the level of earned exposure
Which one of the following statements concerning the effect of under-reserving on
premium rates is true? - ANSWER-Under-reserving makes incurred losses appear too
low and results in rates that are too low.
Which one of the following best explains how loss reserves are handled on an insurer's
financial statements? - ANSWER-They are liabilities on the balance sheet
EXAM QUESTIONS WITH COMPLETE
ANSWERS
Incurred but not reported (IBNR) losses include those losses that have occurred but
have not yet been reported as well as a reserve for reported losses that are expected to
develop further. Which of the following methods uses historical relationships between
IBNR reserves and reported losses in IBNR forecasts? - ANSWER-Percentage method
Which one of the following individuals would normally set the level of bulk reserves for
an insurer? - ANSWER-Actuary
Which one of the following statements is true regarding an insurer's total case reserves?
- ANSWER-Reinsurers may supplement the primary insurer's case reserves for their
own financial reporting purposes.
The purpose of loss reserves is to - ANSWER-Estimate the insurer's liability for losses
that have occurred but have not yet been settled.
Primary Insurance Company (PIC) has a large book of first party automobile policies.
Which one of the following would be the best method for PIC to reserve collision losses
that arise from the resulting claims? - ANSWER-Average method
The correct formula for incurred losses is - ANSWER-Incurred Losses = paid losses +
loss reserves + loss adjustment expense reserves.
Primary Insurance Company (PIC) has outstanding loss reserves at the end of the past
year totaling $28 million. During the first quarter of this year PIC's reserves were
reevaluated and were increased to $32 million. Which one of the following best
describes the financial impact of this increase? - ANSWER-Policyholders' surplus will be
reduced.
Which one of the following is an approach used to determine the initial recognition of
losses for the current accident year? - ANSWER-Accrual of estimated incurred losses
based on the level of earned exposure
Which one of the following statements concerning the effect of under-reserving on
premium rates is true? - ANSWER-Under-reserving makes incurred losses appear too
low and results in rates that are too low.
Which one of the following best explains how loss reserves are handled on an insurer's
financial statements? - ANSWER-They are liabilities on the balance sheet
