CAS Practice Exam 2025 – Complete Study Guide

The reason why consistency with industry benchmarks indicates that the insured's estimates are reasonable lies in the comparative nature of underwriting assessments. Underwriters often use industry benchmarks as a standard to evaluate the estimates provided by the insured. When the estimates align with these benchmarks, it suggests that the insured has based their figures on realistic and representative industry data. This consistency implies that the insured has a well-founded basis for their estimates, reducing the likelihood of over- or underestimating important factors such as revenues, expenses, or loss exposures.

On the other hand, while a high-risk classification could suggest that more caution is warranted during underwriting, it does not in itself provide validation for the estimates. Excessive advertising budgets could imply a disproportionate focus on marketing rather than operational fundamentals, offering little insight into the reasonableness of estimates. Lastly, having a longer operating history may provide some context for the estimates, but it does not guarantee that the estimates themselves are sensible or aligned with industry expectations. Thus, having estimates that are consistent with industry benchmarks is the clearest indicator of their reasonableness in the underwriting process.