Alberta General Insurance Level 1 Practice Exam

Rate-making refers to the process used by insurance companies to determine the premium rates that they will charge policyholders for coverage. This process involves a thorough analysis of various factors including historical data on claims, expected loss costs, administrative expenses, and the overall risk profile of the insured population.

In rate-making, actuaries use statistical methods to assess the likelihood of claims occurring and the potential costs associated with those claims. The goal is to set premiums at a level that not only covers expected losses but also contributes to the insurer's operational costs and profit margins. By accurately determining these rates, insurance companies aim to maintain solvency while also remaining competitive in the market.

The other options do not accurately reflect the definition of rate-making. Investigating fraudulent claims pertains to claims management rather than the establishment of premium rates. Marketing insurance products involves promoting and selling policies, which is a separate function. Adjusting coverage limits in response to market trends is more about adapting policy offerings rather than setting the rates charged for those policies.