Actuarial›Exam FAM›Short-Term Insurance Pricing and Reserving
Exam FAM topic · 15–20% of exam

Short-Term Insurance Pricing and Reserving

Pricing, loss reserving, and credibility for short-term insurance products including property, casualty, and health.

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Per-objective worked-example outlines

For each learning objective on Short-Term Insurance Pricing and Reserving, here is the approach an exam item would test — the setup, the ordering of your reasoning, and the formula or identity you need to bring to the page. Approaches, not full solutions, by design. Verify against the current soa.org syllabus before your sitting.

Compute premiums for short-term insurance coverages

Setup

Loss costs and expense provisions are given and you must compute a premium using the loss ratio or pure premium method.

Approach

Pure premium method: indicated premium = (pure premium + fixed expenses) / (1 - variable expenses - profit). Loss ratio method: indicated rate change = (experience loss ratio / target loss ratio) - 1. Apply trend and on-level factors to bring historical losses and premiums to the policy period.

Key identity

Pure premium method: R = (L̄ + F) / (1 - V - Q), where L̄ is pure premium, F fixed, V variable, Q profit.

Estimate loss reserves using chain ladder and Bornhuetter-Ferguson methods

Setup

A loss development triangle is given and you must compute IBNR or ultimate losses by accident year.

Approach

Chain ladder: compute age-to-age development factors as ratios of cumulative losses, multiply through to a tail factor, and apply to the latest diagonal. Bornhuetter-Ferguson: ultimate = reported + (a priori) × (1 - 1/CDF). Chain ladder is responsive to reported emergence; BF blends in a stable a priori expectation that is useful for green years.

Key identity

Chain ladder: ULT_i = reported_i × CDF_i. BF: ULT_i = reported_i + a priori_i × (1 - 1/CDF_i).

Apply classical and Buhlmann credibility to adjust rates based on experience

Setup

An insured's experience and the manual rate are given and you must compute a credibility-weighted estimate.

Approach

Classical limited fluctuation: Z = min(√(n/n_F), 1) where n_F is the full credibility standard. Buhlmann: Z = n / (n + K) where K = E[Var(X|θ)] / Var(E[X|θ]) (process variance over variance of hypothetical means). The credibility-weighted estimate is Z · experience + (1 - Z) · manual rate.

Key identity

Credibility estimate: μ̂ = Z X̄ + (1 - Z) M, with Z chosen by method.

Common exam traps on Short-Term Insurance Pricing and Reserving

Recurring patterns where candidates lose points on Short-Term Insurance Pricing and Reserving-style items. Each entry pairs the trap with the fix.

Trap

Using paid losses when the question expects incurred (or vice versa).

Fix

Reread the triangle label and consider which development pattern applies — paid development is slower than incurred.

Trap

Applying chain ladder to immature accident years.

Fix

For very recent years, BF or expected loss methods are more stable than chain ladder.

Trap

Confusing the credibility factor Z with the complement (1 - Z).

Fix

Z weights experience; (1 - Z) weights the manual rate or a priori estimate.

Trap

Forgetting to trend or on-level historical premiums.

Fix

Premiums must be at the current rate level and on the current rate of inflation to compare to projected losses.

Where to find Short-Term Insurance Pricing and Reserving in popular manuals

Pointers to where each major vendor covers this topic, so you can grab the right chapter without combing the full manual. We do not reproduce vendor content — just the location. Chapter and lesson numbers shift between editions; use these as a guide, not as a citation.

ASM

Short-term pricing, reserving, and credibility chapters in the FAM manual

ACTEX

Ratemaking, reserving, and credibility chapters

Coaching Actuaries

Learn modules on Short-term Pricing and Reserving; Adapt categories "Pricing" and "Reserving"

The Infinite Actuary

Short-term insurance video block including ratemaking and BF

7-day Short-Term Insurance Pricing and Reserving micro plan

A focused 7-day sub-schedule for Short-Term Insurance Pricing and Reserving specifically, at roughly 1.5–2.5 hours per day. Drop it inside your full Exam FAM plan as a single coverage module.

Day 1

Read the short-term pricing chapter; drill 10 problems mixing loss ratio and pure premium methods.

Day 2

Drill 10 chain ladder problems on a 5x5 development triangle.

Day 3

Bornhuetter-Ferguson and Cape Cod problems — 8 problems blending a priori and reported.

Day 4

Classical credibility — 8 problems determining partial vs full credibility standards.

Day 5

Buhlmann credibility — 8 problems computing K, Z, and the credibility-weighted estimate.

Day 6

Mixed 18-problem drill across pricing, reserving, and credibility.

Day 7

Re-do flagged problems and write a one-page chart linking credibility methods to formulas.

How exclam.ai helps you master Short-Term Insurance Pricing and Reserving

Flashcards from your manual

Upload your ACTEX Exam FAM digital edition, scanned ASM pages, TIA handouts, or your own notes. exclam.ai extracts the Short-Term Insurance Pricing and Reserving sections and generates flashcards automatically, tuned to the exam traps above.

Worked-example drilling

Each per-objective approach above maps to a quiz template. exclam.ai re-surfaces missed items until you can recall both the setup and the key identity from cold.

FSRS spaced repetition

Because Short-Term Insurance Pricing and Reserving is 15–20% of your exam, losing it during review costs you. FSRS brings it back at the optimal moment.

Short-Term Insurance Pricing and Reserving in the Exam FAM context

SOA Exam FAM has 7 topic areas. Short-Term Insurance Pricing and Reserving is weighted at approximately 15–20% of the exam, here is where it sits relative to the other topics.

Topic areaWeight
Insurance Coverages and Retirement Products5–10%
Severity, Frequency, and Aggregate Models15–20%
Parametric Estimation10–15%
Mortality and Survival Models10–15%
Life Insurance Pricing and Reserving15–20%
→ Short-Term Insurance Pricing and Reserving15–20%
Option Pricing Fundamentals5–10%

Other Exam FAM topics

Insurance Coverages and Retirement Products

5–10%

Structure and features of common insurance and retirement products including life insurance, annuities, health, and short-term insurance.

Study this topic

Severity, Frequency, and Aggregate Models

15–20%

Statistical models for individual loss severity, claim frequency, and aggregate loss distributions including compound distributions.

Study this topic

Parametric Estimation

10–15%

Maximum likelihood and method of moments estimation for parametric models, including goodness of fit testing.

Study this topic

Mortality and Survival Models

10–15%

Life table construction, force of mortality, select and ultimate mortality, and multiple-decrement models.

Study this topic

Life Insurance Pricing and Reserving

15–20%

Pricing and reserving for life insurance and life annuity products using the equivalence principle and benefit reserves.

Study this topic

Option Pricing Fundamentals

5–10%

Introduction to option pricing including put-call parity, binomial models, and Black-Scholes pricing for European options.

Study this topic

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