AIAF 114- Chapter 5 Practice Exam ||
Correct Questions And Verified
Answers | Latest 2026
When accounting for accident-year losses for year 20X6, which one of the following would be included? -
✔✔A reserve change in 20X7 for a loss that occurred in 20X6
Correct. When accounting for accident-year losses for year 20X6, a reserve change in 20X7 for a loss that
occurred in 20X6 would be included. An accident-year method aggregates incurred losses for a given
period (such as twelve months) using all incurred losses for insured events that occurred during that
period. Any losses that occurred in previous or later periods are not included.
The case reserving method that establishes an average amount for all claims that have similar
characteristics in terms of the claimant's age, health, and marital status is known as the - ✔✔Tabular
method
Both primary insurers and reinsurers must maintain reserves for expected future loss payments. Which
one of the following best describes the reserves that a reinsurer must maintain? - ✔✔Amounts obligated
in the future to pay to primary insurers
The average method of case reserving is most suitable for those types of insurance where claims are -
✔✔Reported and paid promptly
Assume an actuary estimates losses at 80 percent of earned premium of $20 million, and that $3 million
in losses have been paid. The insurer wants to establish a bulk reserve for reported losses—payment
uncertain. Which one of the following represents the appropriate amount for the bulk reserve? - ✔✔$13
million
Correct. Reserves for reported losses when the amount of payment is uncertain can be calculated on a
bulk basis by subtracting the amount already paid for losses from a certain percentage of total earned
premium. The bulk reserve would be the estimated incurred loss of $16 million ($20 million premium x
80 percent loss ratio) less the $3 million of paid losses, which is $13 million.
Bulk reserves can be established for various categories. At any given time, the difference between
incurred losses and ultimate losses is known as - ✔✔Incurred but not reported (IBNR) reserves
