Casualty Actuarial Society (CAS) Practice Exam

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What is an essential aspect of the data necessary for calculating actuarially credible rates?

  1. Market research data

  2. Claim payments and premiums

  3. Policyholder demographics

  4. Advertising expenditures

The correct answer is: Claim payments and premiums

Calculating actuarially credible rates relies heavily on having accurate and relevant data that reflects the actual experiences of the insured risks. Claim payments and premiums are fundamental components in this context. Claim payments provide insight into the frequency and severity of claims, while premiums reflect the revenue generated from insurance policies. Together, they allow actuaries to analyze loss ratios and establish a reliable basis for rate-making. Using claim payment data helps actuaries assess how much has been paid out for losses historically, which is crucial for predicting future liabilities and ensuring that premiums are set at an adequate level to cover anticipated claims. Similarly, premium data is essential to evaluate the profitability of insurance products and determine if the rates charged are sufficient to cover the associated risks. In contrast, while market research data, policyholder demographics, and advertising expenditures may provide useful context and insights into market trends and target markets, they do not directly inform the fundamental calculations of risk and pricing in the same way that claim payments and premiums do. These other data types may enhance understanding of the marketplace and customer behavior, but they are not as critical to the core data needed for calculating credible rates based on loss experience.