Exam F1PC

F1PC – Pricing is an exam of the property and casualty track of the Canadian Institute of Actuaries' Fellowship (FCIA) pathway.

About the exam

The aim of this exam is for candidates to develop the following skills:

• Understand the main principles and techniques of pricing that are relevant to P&C insurance (including reinsurance), including techniques to estimate the key components of a technical price.

• Apply these principles and techniques within the context of P&C insurance.

• Understand how pricing links to wider business processes (e.g., business planning, estimating unpaid claims, and capital setting.

• Create and evaluate hypothetical scenarios, including using judgement to assess the implications of possible actions and to develop appropriate proposals or recommendations relating to pricing P&C insurance products.

Exams are administered as an open-book, four-hour exam requiring analysis in the context of a problem and submission of written responses to specific questions. Candidates will complete the exam through the CIA’s learning management system. The ranges of weights (expressed in parentheses) attached to the examination topics further below apply to most of exams administered. Candidates should also recognize that questions often cover multiple learning objectives, including communication.

Learning Objectives

Principal terms (0%)

1. Define the principal terms used in pricing P&C insurance products. (A1)

Regulations and applicable standards (15%)

1. Apply relevant legislation and regulations applicable to actuarial pricing, including automobile insurance legislation in Ontario and Alberta, rate filing requirements, and residual market mechanisms. (A3)
2. Apply actuarial professionalism requirements applicable to pricing analyses. (B3)

Data (10%)

1. Differentiate the types of data (including claims and expenses) and information required for pricing (including analyses of aggregate rate level, classification, and large account), their sources, and main uses.(A4)
2. Apply the concepts of homogeneity and credibility in selecting data for pricing analyses. (B3)
3. Understand the implications to data requirements of different characteristics of insurance (e.g., long tail vs. short tail, low frequency/high severity vs. high frequency/low severity lines of business). (B2)
4. Evaluate the influence of the insurer’s internal environment (such as changes in operations or information technology) on data used for pricing analyses. (B5)
5. Evaluate the influence of external environments (such as economic and judicial decisions and environmental changes) on data used for pricing analyses. (B5)
6. Understand the possible causes of data errors and the effects of inadequate data and information. (B2)
7. Create appropriate data-validation processes. (C6)

Catastrophe modelling (5%)

1. Describe the practical considerations involved in catastrophe modelling. (C2)
2. Describe a catastrophe model, including the basic structure, key perils modelled, components (including event hazard, exposure, vulnerability, and financial analysis) and outputs (including event distributions and simulations), and their uses. (B2)
3. Apply outputs from the catastrophe-modelling process to the overall rate level indication. (C3)

Pricing – overall rate level indication (25%)

1. Calculate and evaluate the overall rate level indication using the following techniques: (C5)
   • a. Loss ratio;
   • b. Pure premium;
   • c. Frequency severity; and
   • d. Loss curve.
2. For each of the above techniques:
   • a. Understand the assumptions and mechanics, including the application of credibility. (C2)
   • b. Analyze assumption changes and determine their influence on the results of the overall rate level indication. (C4)
   • c. Evaluate the technique with varying data quality and completeness, and in different situations. (D5)
   • d. Describe the strengths and limitations of each technique and the impact of these limitations on results. (D2)
   • e. Select the appropriate technique and assumptions given a specific use case. (D5)
3. Define and calculate various components of a technical premium, including: (C3)
   • a. Expected claims and adjustment expenses;
   • b. Expense loading(s);
   • c. Reinsurance costs and benefits;
   • d. Profit margin;
   • e. Investment return; and
   • f. Capital requirements and return on capital.
4. Create experience investigations and evaluate the results considering: (D6)
   • a. Data inaccuracy, scarcity, or incompleteness;
   • b. Varied exposure measures;
   • c. Risk relativities;
   • d. Seasonality of claims;
   • e. Net margin changes;
   • f. Large losses and catastrophe events; and
   • g. Analysis by peril or type of claim.
5. Adapt pricing techniques to allow for frequency and severity distributions. (C3)
   • a. Reflect the differences between short-tail vs. long-tail business and occurrence vs. claims-made coverages in pricing analyses (C3).
6. Respond to practical considerations, including operational and regulatory constraints, that influence insurance pricing. (C5)
7. Evaluate how the pricing of competitor products influences price setting. (B5)

Pricing – segmentation (25%)

1. Understand how the concepts of segmentation, adverse selection, product hierarchy, and regulations influence pricing. (B2)
2. Demonstrate the need to price for different levels of risk and the consequences for portfolio performance if no risk-based pricing is employed. (C3)
3. Apply and evaluate different pricing techniques for segmentation analysis, including: (C5)
   • a. Simple tabular analysis.
   • b. Generalized linear models (GLMs); and
   • c. Machine-learning models and neural networks.
4. Describe data mining and non-parametric approaches. (C2)
5. For each of the techniques in 6.3:
   • a. Understand the assumptions and mechanics of the technique, including the application of credibility and off-balance considerations. (C2)
   • b. Validate the underlying data and the output of the model or technique. (C5)
   • c. Evaluate the appropriateness and limitations of various segmentation techniques for a given use case, including the application of a credibility-weighting technique. (D5)
6. For GLMs and multivariate modelling:
   • a. Apply GLMs to the rating of personal-lines business and small commercial risks; (C3)
   • b. Understand the different types of multivariate models; (C2)
   • c. Apply multivariate models in pricing; (C3)
   • d. Select the appropriate error structures and link functions; (C4)
   • e. Analyze residual charts, parameter estimates, and other GLM and multivariate model output; and (C4)
   • f. Analyze and correct errors for given GLM and multivariate model outputs. (C4)
7. Apply calculations relating to a range of pricing matters, including:
   • a. Allowance for excesses and deductibles; (C3)
   • b. Treatment of granular rating factors such as geography, vehicle characteristics, and occupations; and (C3)
   • c. Treatment of natural hazards and catastrophes. (C3)
8. Adopt a pricing technique to allow for government-mandated or monitored rates. (C3)
9. Recognize and allow for the key features that relate to long-tail business pricing, including:
   • a. Linkage with outstanding claims analysis; (C3)
   • b. Exposure analysis; (C3)
   • c. Setting and application of economic assumptions; and (C3)
   • d. Other product-specific features. (C3)

Pricing – large account pricing (5%)

1. Describe the particular considerations when pricing large commercial risks, including considerations related to credibility. (B2)
2. Describe alternative approaches to pricing large commercial risks. (A2)
3. Apply appropriate pricing techniques for large accounts. (C3)
4. Evaluate the appropriateness and limitations of various pricing techniques for a given scenario, product, or set of data. (D5)
5. Perform and evaluate calculations relating to a range of pricing matters, including:
   • a. Allowance for aggregate deductibles and limits; (C5)
   • b. Allowance for loss-responsive policy conditions; (C5)
   • c. Treatment of self-insured retentions; (C5)
   • d. Claims-sharing arrangements; and (C5)
   • e. Incorporation of underwriting views in a rigorous pricing framework. (C5)

Pricing – reinsurance (10%)

1. Describe the similarities and differences between pricing direct and reinsurance business. (B2)
2. Calculate appropriate premiums for each of the following types of reinsurance:
   • a. Proportional reinsurance; (C3)
   • b. Non-proportional reinsurance; (C3)
   • c. Property catastrophe reinsurance; and (C3)
   • d. Stop loss. (C3)
3. Describe the data required to determine appropriate premiums for each of the above types of reinsurance. (A2)

Portfolio analytics (5%)

1. Create a portfolio analytics framework for a P&C insurer. (C6)
2. Create framework(s) to monitor: (C6)
   • a. Exposures (e.g., retention, closing, mix of business).
   • b. Pricing actions (e.g., product and underwriting initiatives).
   • c. Claims experience; and
   • d. Compliance.
3. Understand the rationale and practical considerations that apply in measuring price elasticity and cross-selling opportunities. (B2)
4. Understand the rationale and practical considerations that apply in exposure management. (B2)

Source Material

Source Material

• FCIA Syllabus – Property and casualty track (CIA - 2025)
  • Exam F1PC (pp. 5–8)