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An actual-versus-expected (AvE) monitoring exercise compares emerging experience to projections in order to:
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2026 Statistics
Key Facts: IFoA SP7 Exam
3h 20m
Exam Duration
IFoA curriculum
~200
Study Hours
IFoA curriculum
Specialist
Exam Stage
IFoA qualification
~30%
Reserving Weight
SP7 syllabus
Written
Question Format
IFoA curriculum
100
Practice Questions
OpenExamPrep
SP7 is the IFoA's General Insurance Reserving and Capital Modelling Specialist Principles subject, assessed by a 3 hour 20 minute open-book online written paper of short-answer and long-answer questions rather than multiple choice. The IFoA recommends around 200 hours of study and does not publish a fixed pass mark, with grades set by the Board of Examiners each session. The syllabus is weighted towards reserving (around 30%), with capital modelling, reinsurance, data and the general insurance environment making up the remainder. Our 100 free practice questions are technical-knowledge preparation aligned to the 2026 syllabus structure and current Solvency II terminology.
Sample IFoA SP7 Practice Questions
Try these sample questions to test your IFoA 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 (link ratio) for development period j to j+1 primarily estimate?
A.The proportionate growth in cumulative claims from one development period to the next
B.The ultimate loss ratio for the most recent accident year
C.The expected number of claims reported in the next calendar year
D.The discount factor applied to future claim payments
Explanation: A chain ladder development factor measures how cumulative claims grow from development period j to j+1, typically as the ratio of summed cumulative claims at j+1 to those at j. Applying successive factors projects each accident year's cumulative claims to ultimate.
2The Bornhuetter-Ferguson reserve for an accident year is best described as which of the following?
A.A pure chain ladder projection with no use of any prior expectation
B.A credibility blend that weights the chain ladder estimate by the proportion of claims already developed and the expected (a priori) ultimate by the proportion still to develop
C.The simple average of the paid and incurred chain ladder ultimates
D.The expected ultimate multiplied by the reported claim count
Explanation: Bornhuetter-Ferguson combines an a priori expected ultimate with emerging experience: the outstanding reserve equals the expected ultimate multiplied by the proportion of claims still to be developed (1 minus the reciprocal of the cumulative development factor). It gives stability for immature, volatile years.
3An accident year has an expected ultimate of 1,000 and a cumulative development factor to ultimate of 1.25. Using Bornhuetter-Ferguson, what is the IBNR reserve (claims still to emerge)?
A.250
B.800
C.200
D.1,250
Explanation: The proportion still to develop is 1 minus 1/1.25 = 1 - 0.80 = 0.20. The BF IBNR equals expected ultimate times the unexpired proportion: 1,000 x 0.20 = 200. The remaining 800 is treated as already developed.
4Which condition would MOST undermine the reliability of a basic paid chain ladder projection?
A.A stable claims handling process over many years
B.Consistent case reserving philosophy across accident years
C.Homogeneous risk groups within the triangle
D.A material change in the speed of claim settlement during the experience period
Explanation: The chain ladder assumes a stable run-off pattern. A change in settlement speed distorts development factors, causing the method to over- or under-project ultimates. Stability, consistent reserving, and homogeneity are exactly the conditions that support the method.
5The average cost per claim (ACPC) reserving method separately projects which two quantities?
A.Claim numbers and average claim amounts
B.Premium rates and expense ratios
C.Discount rates and inflation indices
D.Reinsurance recoveries and gross losses
Explanation: ACPC (frequency-severity) methods project claim numbers (frequency) and average cost per claim (severity) separately, then multiply them to estimate ultimate claims. This isolates trends in counts from trends in amounts, which is useful when settlement or inflation patterns differ.
6Why might an actuary prefer the Bornhuetter-Ferguson method over the chain ladder for the most recent accident year?
A.BF always produces a lower reserve, reducing capital requirements
B.The most recent year is immature, so chain ladder factors leverage sparse data heavily, whereas BF anchors the estimate to a stable prior expectation
C.Chain ladder cannot be applied to incurred data
D.BF removes the need for any development pattern
Explanation: For an immature year, only a small proportion of claims has developed, so a high cumulative development factor amplifies random fluctuations under chain ladder. BF dampens this by relying on the a priori ultimate for the undeveloped portion, giving a more stable estimate.
7In a claims run-off triangle, the leading diagonal (most recent calendar period) represents what?
A.The fully developed ultimate claims for every accident year
B.The first development period payments only
C.The latest cumulative position for each accident year as at the most recent valuation date
D.The expected future payments yet to emerge
Explanation: The leading (latest) diagonal of a triangle holds the cumulative claims for each accident year observed up to the current valuation date. Older accident years are more developed along the diagonal, while the most recent year is least developed.
8The operational time concept in reserving refers to measuring claim development by which dimension?
A.The number of staff hours spent handling claims
B.The discounting period in years
C.The reinsurance treaty year
D.The proportion of ultimate claim numbers settled rather than elapsed calendar or development time
Explanation: Operational time re-expresses development in terms of the proportion of claims settled to date, rather than elapsed time. This stabilises severity analysis when settlement rates change, because severity is then measured at comparable points of run-off progression.
9When projecting future claim inflation in a reserving exercise, which approach correctly handles past inflation already embedded in the data?
A.Adjust historical claims to current price levels, fit development, then re-inflate projected amounts using a future inflation assumption
B.Ignore inflation entirely because development factors automatically allow for it
C.Deflate only the most recent diagonal and leave earlier data unchanged
D.Apply a single fixed factor to the final ultimate regardless of payment timing
Explanation: Best practice is to remove past inflation by restating historical claims to a common price base, project the inflation-adjusted development, and then add back an explicit future inflation assumption appropriate to the timing of payments. This separates the inflation assumption so it can be reviewed.
10What is the primary purpose of holding a margin (or risk adjustment) above the best estimate in a claims reserve?
A.To increase reported profit in the current year
B.To allow for the uncertainty that actual claims may exceed the best estimate
C.To eliminate the need for capital modelling
D.To guarantee that reserves are never released
Explanation: A reserving margin or risk adjustment recognises that the best estimate is a probability-weighted mean and outcomes can be worse. It provides a buffer for adverse deviation. Under Solvency II this is formalised as the risk margin within technical provisions.
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