Casualty Actuarial Society (CAS) Practice Exam

The choice highlighting premium growth issues and the sustained rate of growth over time is significant for insurer profitability because premium growth directly impacts the revenue stream of the insurer. Insurers depend on premiums collected to cover costs, pay claims, and provide returns to shareholders.

Sustaining a healthy rate of premium growth is critical for the long-term viability of the insurer. It ensures that the company can not only maintain its current operations but also expand and improve its offerings over time. If an insurer fails to grow its premiums effectively, it may face financial instability, struggle to meet obligations, and potentially fall behind competitors who are capturing a larger market share.

On the other hand, although premium stability and policyholder satisfaction are important, they do not directly address the growth aspect as clearly as the chosen answer. Similarly, while investment returns and market share are essential factors for overall profitability, they are not as specific to the implications of premiums as the sustained rate of premium growth is. Claims frequency and loss ratios are pivotal in understanding an insurer’s cost structure, but they are more focused on expenses rather than revenue generation linked with premiums. Thus, the emphasis on premium growth and sustained growth rate encapsulates a vital aspect of insurer profitability by ensuring a steady and increasing revenue stream.