Casualty Actuarial Society (CAS) Practice Exam

Why do insurers often rely on investment earnings?

1. To lower administrative costs

2. To reduce premium pricing for customers

3. To manage regulatory compliance

4. To enhance customer service operations

The correct answer is: To reduce premium pricing for customers

Insurers often rely on investment earnings primarily to reduce premium pricing for customers. By generating income through investments, insurers can alleviate some financial burdens, allowing them to offer lower premiums without jeopardizing their financial stability. Investment earnings play a crucial role in the overall financial performance of an insurance company, as they supplement the revenue generated from underwriting activities (the premiums collected). This additional income can help offset claims costs and expenses, enabling insurers to remain competitive in pricing while still achieving profitability. The dynamics of the insurance marketplace necessitate that companies find ways to maintain affordability for clients, and leveraging investment earnings is one effective strategy to achieve this goal. Ultimately, when insurers can generate strong investment returns, they are better positioned to pass on some of that financial benefit to their customers in the form of lower premiums.