Casualty Actuarial Society (CAS) Practice Exam

More restrictive underwriting criteria typically results in a reduction in the premium volume for an insurer. This occurs because stricter guidelines can limit the number of policyholders the insurer is willing to accept, thereby shrinking the pool of insurable risks.

When an insurer implements tighter underwriting standards, it tends to become more selective about the risks it underwrites. Consequently, fewer applications are accepted, which leads to a decrement in the overall premiums written. This response aligns with the insurer's goal of maintaining financial stability and mitigating potential losses by avoiding higher-risk individuals or entities.

While a policy of more restrictive underwriting does enhance the quality of the insurance portfolio by focusing on lower-risk customers, it simultaneously poses the risk of impacting the premium volume negatively due to the reduced acceptance of new policies. As a result, the relationship between restrictive underwriting practices and the reduction in premium volume is well-established in the actuarial field, reflecting that careful risk assessment is critical in managing profitability and loss exposure.

Ask an Examzify Tutor