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The average cost per claim (ACPC) reserving method estimates ultimate claims by separately projecting which two components?
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2026 Statistics
Key Facts: IAI SP7 Exam
3h 15m
Exam Duration
IAI SP7 syllabus
30%
Reserving Weight
IAI SP7 syllabus
20%
Products and Environment
IAI SP7 syllabus
17.5%
Capital Modelling Weight
IAI SP7 syllabus
5
Syllabus Areas
IAI SP7 syllabus
100
Practice Questions
OpenExamPrep
IAI Subject SP7, General Insurance Reserving and Capital Modelling, is a 3-hour-15-minute written specialist-principles application paper set by the Institute of Actuaries of India. The current syllabus weights Reserving most heavily at 30%, followed by General Insurance Products and Business Environment at 20%, Data, Investigations, Reinsurance and Investment at 17.5%, Capital Modelling at 17.5%, and Risk, Uncertainty and Regulation at 15%. The IAI sets a pass mark for each sitting rather than publishing a fixed percentage, and these 100 practice questions provide multiple-choice knowledge prep across the same technical body of knowledge.
Sample IAI SP7 Practice Questions
Try these sample questions to test your IAI SP7 exam readiness. Each question includes a detailed explanation. Start the interactive quiz above for the full 100+ question experience with AI tutoring.
1In the basic chain ladder method, what does a development factor (age-to-age or link ratio) of 1.25 between development years 1 and 2 indicate?
A.Cumulative claims at development year 2 are expected to be 25% higher than at development year 1
B.Ultimate claims are 25% of reported claims
C.25% of claims are settled in development year 2
D.The reserve should be reduced by 25%
Explanation: A chain ladder development factor multiplies cumulative claims from one development period to the next. A factor of 1.25 means cumulative claims at year 2 are 1.25 times (25% higher than) cumulative claims at year 1, reflecting continued claim development.
2The Bornhuetter-Ferguson (BF) reserving method combines which two elements?
A.Two independent chain ladder projections
B.An a priori expected loss estimate and a development-pattern weighting
C.Discounted and undiscounted reserves
D.Paid and incurred triangles only
Explanation: The BF method blends an a priori (initial expected) ultimate loss with the chain-ladder development pattern. Reserves equal the a priori ultimate multiplied by the proportion of development still to emerge (1 minus the reciprocal of the cumulative development factor), making it more stable than pure chain ladder for immature years.
3A class has an a priori ultimate loss of 1,000, and the cumulative development factor to ultimate is 2.0. Using Bornhuetter-Ferguson, what is the IBNR reserve?
A.1,000
B.2,000
C.500
D.250
Explanation: The proportion unreported is 1 - 1/CDF = 1 - 1/2.0 = 0.5. BF IBNR = a priori ultimate x proportion unreported = 1,000 x 0.5 = 500. BF applies the expected emergence pattern to the prior rather than to observed claims.
4Which reserving method is generally MOST appropriate for the most recent (least developed) accident year of a long-tailed liability class?
A.Basic chain ladder on paid claims
B.Average cost per claim with no tail
C.Pure IBNER run-off only
D.Bornhuetter-Ferguson or expected loss ratio
Explanation: For immature years, sparse data makes chain ladder volatile because a small early movement is leveraged by a large development factor. BF (or an expected loss ratio approach) anchors the estimate to an a priori expectation, giving more stable results until the year matures.
5In Mack's stochastic chain ladder model, what is the primary output beyond the central reserve estimate?
A.The mean squared error of prediction (prediction error) of the reserves
B.The exact full predictive distribution of reserves
C.A deterministic tail factor
D.The risk margin under Solvency II
Explanation: Mack's method is a distribution-free model that reproduces the chain ladder central estimate and additionally provides the standard error (prediction error / MSEP) of the reserve estimate. It does not require a full distributional assumption and does not by itself produce a complete predictive distribution.
6Which stochastic reserving model reproduces the chain ladder central estimate and is commonly fitted via a generalised linear model (GLM)?
A.The Black-Scholes model
B.The over-dispersed Poisson (ODP) model
C.The Cox proportional hazards model
D.The Wilkie investment model
Explanation: The over-dispersed Poisson model fitted as a GLM on incremental claims reproduces the chain ladder central estimate while allowing for over-dispersion. It is frequently combined with bootstrapping to generate a predictive distribution of reserves.
7What is the main purpose of applying the bootstrap technique in stochastic reserving?
A.To discount reserves to present value
B.To remove the need for a development triangle
C.To generate an empirical predictive distribution of reserves by resampling residuals
D.To convert paid to incurred claims
Explanation: Bootstrapping resamples the residuals of a reserving model (often an ODP GLM) to create many pseudo-datasets, re-estimating reserves each time. This builds an empirical distribution of the reserve, capturing both estimation and process uncertainty for percentile-based capital and risk-margin work.
8IBNER (Incurred But Not Enough Reported) reserves specifically allow for which phenomenon?
A.Claims that have occurred but have not yet been reported at all
B.Future claims from unexpired policy periods
C.Reopened claims that were previously closed at zero
D.Development on claims already reported, including changes to case estimates
Explanation: IBNER captures the expected development (up or down) on claims already reported, primarily movement in case reserves toward ultimate settlement. Pure IBNR, by contrast, covers claims incurred but not yet reported. Total IBNR provision is usually pure IBNR plus IBNER.
9When a portfolio is experiencing claims inflation that is not stable, why might the basic paid chain ladder produce a biased estimate?
A.It implicitly assumes past inflation in the data continues into the future development
B.It always understates reserves regardless of inflation
C.It ignores the development pattern entirely
D.It cannot be applied to paid data
Explanation: The basic paid chain ladder implicitly projects the average past inflation embedded in the historic development factors into the future. If future inflation differs from this implicit rate, reserves are biased. An inflation-adjusted chain ladder restates claims to a common price level, applies factors, then re-inflates using an explicit assumption.
10The average cost per claim (ACPC) reserving method estimates ultimate claims by separately projecting which two components?
A.Premium and loss ratio
B.Claim numbers and average claim amounts
C.Paid and outstanding amounts
D.Frequency and exposure only
Explanation: ACPC projects the ultimate number of claims and the ultimate average cost per claim separately, then multiplies them. Separating frequency and severity can reveal trends (e.g. severity inflation or reporting-rate changes) that an aggregate chain ladder would mask.
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