# CAS Exams and Exam Pathway

Contents

## CAS Exam 1 – Probability

CAS Exam 1 exam aims to develop knowledge of the fundamental probability tools for quantitatively assessing risk. There is a particular emphasis on the application of these tools to problems encountered in actuarial science.
Required knowledge: Candidates should have a thorough command of the supporting calculus and a very basic knowledge of insurance/risk management.

## CAS Exam 2 – Financial Mathematics

CAS Exam 2 aims to develop knowledge of the fundamental concepts of financial mathematics and how those concepts are applied in calculating various streams of cash flows. This knowledge is applicable to reserving, valuation, pricing, asset/liability management, and investment income. The candidate will also be given an introduction to financial instruments, including derivatives, and the concept of no-arbitrage as it relates to financial mathematics.
Required knowledge: Candidates should have a basic knowledge of calculus and an introductory knowledge of probability.

## CAS Exam 3F – Models for Financial Economics Exam

CAS Exam 3F aims to develop knowledge of the theoretical basis of actuarial models and the application of those models to insurance risks.
Required knowledge: Candidates should have a thorough knowledge of calculus, probability, and interest theory

## CAS Exam 4 – Construction and Evaluation of Actuarial Models Exam

CAS Exam 4 aims to provide an introduction to modeling and actuarial methods useful in modeling. This actuarial exam will introduce frequency and severity models beyond those covered in the Financial Economics and Life Contingencies Exams. The candidate will be required to understand the steps involved in the modeling process and how to carry out these steps in solving business problems.
Required knowledge: Candidates should have a thorough knowledge of calculus and probability

## CAS Exam 5 – Basic Ratemaking and Reserving

CAS Exam 5 introduces the general principles of ratemaking and reserving.
For ratemaking, candidates will analyze data, select appropriate techniques, and develop solutions to problems. The candidate will learn the advantages and disadvantages of the various ratemaking techniques as they are applied to specific situations and different lines of business. Classification of insureds for the purpose of risk stratification and other important ratemaking topics, such as coinsurance and catastrophe provisions, will also be tested.
For reserving, the exam explores basic techniques that actuaries use to estimate unpaid claims. This includes both insurance entities and non-insurance entities that retain risk.

## CAS Exam 6 – Regulation and Financial Reporting

This is a country specific exam. The available countries include the United States, Canada, and Taiwan.

## CAS Exam 7 – Advanced Reserving and ERM

This covers more advanced reserving than CAS Exam 5. Reserving is also known in the exam syllabus as Estimation of Policy Liabilities.
The candidate is expected to be well versed in the basic Principles and Standards of Practice for unpaid claim estimation. The candidate should know how actuarial concepts are adapted to evaluate liabilities arising in complex risk transfer agreements common in excess insurance and reinsurance contracts. Emphasis is placed on developing ranges around a best estimate.

Insurance Company Valuation focuses on methods used to determine the theoretical value of equity securities and extending the
methodology to value property and casualty insurance companies. The candidate is expected to be proficient with the basic tools and techniques commonly used in the financial analysis of corporations.

Enterprise Risk Management introduces the candidate to the concepts and basic techniques of Enterprise Risk Management (ERM). ERM seeks to integrate the entire landscape of risk that confronts a business. Topics include value of risk management and basic modeling concepts.

## CAS Exam 8 – Advanced Ratemaking

This exam is broken down into several subsections.

### Classification rate-making and rate filings

The candidate should go beyond mechanical construction to the comparison and evaluation of alternative classification scheme.

### Excess and Deductibles Rating

Excess and deductible rating allows the insured to retain the risk of loss and loss expenses up to limits selected in advance.
Candidates should have a general knowledge and understanding of excess coverages and the problems inherent in pricing these coverages for

### Experience Rating

The primary goal of experience rating is the adjustment of an individual risk’s rate to reflect the extent to which
that risk’s own experience identifies it as being different from other risks in the same class

### Retrospective and Loss Sensitive Rating

Retrospective rating allows adjustment of individual risk premium after policy expiration in response to actual loss and expenses associated with the policy. The retrospective rating plans currently in use adjust the premium up or down within limits selected in advance

### Catastrophe Ratemaking

This subsection introduces candidates to the methods used to model losses due to catastrophic events for the purpose of generating a catastrophe risk load and to manage the total exposure from catastrophic events within an insurance portfolio.

### Reinsurance Ratemaking

This subsection introduces candidates to current and historical methods used to price reinsurance. The candidates will be familiar with many of these methods from the materials on primary insurance ratemaking; the emphasis here is on the application of these methods in pricing reinsurance contracts.

## CAS Exam 9 – Financial Risk and Rate of Return

### Portfolio Theory and Equilibrium in Capital Markets

The portfolio theory portion of this section discusses the relationship between the risk and return for different combinations of risky and risk-free investments and discusses the effect of diversification on this relationship. Candidates are introduced to the manner in which investors might select a particular portfolio, from those available, that best suits their individual preferences for risk and return. In the portion of this section on equilibrium in capital markets, various equilibrium models are presented, including the Capital Asset Pricing Model (CAPM) and Arbitrage Pricing Theory (APT). The concept of market efficiency is presented to help candidates understand the factors that move market prices towards and away from the theoretical prices presented in these models.

### Asset-Liability Management

This section exposes the candidate to factors that influence the price sensitivity of fixed income securities and presents various ways in which a portfolio manager might manage the interest rate and cash flow risk in a portfolio of these instruments. The same concepts are also applied to the interest rate risk associated with a firm’s liabilities and the interest rate risk associated with a firm’s total market value, inclusive of their franchise value.

### Financial Risk Management

This section addresses financial risks as well as risks related to the insurance industry from the financial economics perspective. The concepts and techniques presented in this section are important components in the field of enterprise risk management.

### Rate of Return, Risk Loads, and Contingency Provision

This section explores the relationship between insurance concepts (such as underwriting profits, premium-to-surplus ratios, and investment income) and financial concepts (such as interest rates, inflation rates, cost of capital, and risk premiums). The readings build on a background of finance as related to the insurance business, and deal with specific techniques used by actuaries to develop an appropriate profit loading in insurance prices.
Because insurance claims are fortuitous, the expected profit loaded in rates may not be realized. Some models discuss insured events that are predictable in time and amount while other models consider when insured events are uncertain, particularly where capacity is limited and/or sufficient diversification of exposure is impossible.

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