Exam preparation
Actuaries Institute
- Australia
- Actuarial science
- Actuaries Institute
3 guides for this exam — how to prepare, what to practise, and how to know it has gone in.
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A written answer, marked
A question from an Actuaries Institute mock paper, answered and marked. From Actuaries Institute Preparation: A Practical Exam Guide.
An insurer expects 120 claims in the period, with an average cost of $4,500 per claim. Estimate aggregate claims cost. Then estimate the cost if claim frequency rises by 10%, assuming average severity is unchanged. State what the estimate does and does not represent.
4/5Expected claims cost = 120 × $4,500 = $540,000. A 10% increase in frequency gives 132 claims, so cost is 132 × $4,500 = $594,000, an increase of $54,000. This is the expected claims cost.
The method, arithmetic and frequency sensitivity are correct, with units implicit in the values. The response recognises that this is claims cost, not a premium, but does not state the scope assumptions or name important exclusions.
Missed
−State that expenses and reinsurance are excluded, and that the calculation treats expected frequency and average severity as given.
Model answerAssuming 120 claims and an average severity of $4,500, expected aggregate claims cost is 120 × $4,500 = $540,000. Claims multiplied by dollars per claim gives dollars. If frequency rises by 10% to 132 claims and severity is unchanged, the estimate is 132 × $4,500 = $594,000, an increase of $54,000. This is expected gross claims cost under the assumptions, not a premium or a full profit measure. Expenses, reinsurance and variation around the expected values are not included.
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Guides
- Actuaries Institute Preparation: A Practical Exam GuideA practical guide to Actuaries Institute exam preparation: map the assessment, practise calculations and build clear, decision-ready answers.
- Actuaries Institute Study Plan: A Practical Weekly MethodA six-week Actuaries Institute study plan with timed sessions for technical work, written answers, review and targeted practice.
- Actuaries Institute Flashcards: A Practical Study DeckStudy actuarial formulas with a worked flashcard routine for assumptions, calculations, interpretation and exam-style answers.
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