CAS Exam 5 - Basic Techniques for Ratemaking Practice Test

While earlier exams (1-4) focus on broad mathematical, statistical, and financial foundations, Exam 5 is the first CAS-specific exam that delves directly into the core technical craft of property and casualty actuarial work. It transitions from pure theory to applied techniques, teaching you how to actually perform the calculations and analyses required to set insurance rates. It is the gateway to the specialized casualty actuarial body of knowledge.

The exam is a 4-hour written-answer format, typically consisting of 5-7 multi-part questions that require numerical solutions, short explanations, and sometimes the construction of a full rate indication. There is no multiple-choice component. The passing mark is set by the CAS Board of Examiners after each sitting and is not a fixed percentage; it is based on the perceived difficulty of that specific exam. Historically, pass rates range between 40-55%.

For credibility (e.g., Bühlmann, Bühlmann-Straub, classical), focus on understanding the underlying assumptions, formulas for the credibility factor (Z), and the complementary credibility applied to the manual rate. For loss development, mastery of the chain-ladder method (link ratios, age-to-age factors) and the Bornhuetter-Ferguson technique is critical. The most effective strategy is consistent practice with past exam problems and source material, ensuring you can not only perform the calculations but also justify your selection of methods and critique their limitations.

This topic provides the overarching framework that ties all other techniques together. Exam questions often require you to articulate the steps in the process (data review, adjustment, trending, development, etc.) and execute them in a logical sequence to produce a final rate indication. You may be asked to describe the purpose of each step, identify potential data issues, or recommend a course of action, testing your holistic understanding beyond isolated calculations.

Expense loading transforms the pure premium (covering only expected losses) into the final rate that policyholders pay. You must understand how to allocate fixed and variable expenses, calculate the permissible loss ratio (PLR = 1 - Variable Expense Ratio - Profit & Contingency Factor), and use it to convert the projected pure premium into an indicated rate. Missteps here directly impact the profitability and competitiveness of the final rate.