CAS Exam 6 (US) common mistakes
CAS Exam 6 (US) · Understand the traps and how to avoid them.
Answering regulatory-accounting questions using SAP statutory surplus logic when the question asks about GAAP equity, or vice versa, without first identifying which basis the prompt specifies.
Candidates study the two frameworks back-to-back and default to whichever was reviewed most recently; exam prompts often bury the basis in a phrase like 'as reported to regulators' rather than naming SAP explicitly, so the cue is missed under time pressure.
What to do instead
Before computing, write the basis (SAP, GAAP, tax, or RBC) at the top of scratch paper and list the two or three line items that differ between bases (e.g., nonadmitted assets, DAC, goodwill, surplus notes). Practice classifying ten short prompts by basis alone in under two minutes.
Treating the NAIC Annual Statement as a single document and citing the wrong schedule or exhibit for a balance-sheet item (e.g., placing loss reserves on the underwriting exhibit rather than the balance sheet and its supporting loss-reserve schedule).
The statement's structure - assets, liabilities/surplus, underwriting and investment exhibit, loss reserves, and the five-year historical exhibit - is learned as a diagram but not internalized as a map, so candidates recall the concept but misplace the page.
What to do instead
Build a one-page schematic from memory weekly: each schedule, what flows into it, and what it feeds. Then answer five 'where does X appear' questions per session until placement is automatic.
Computing risk-based capital by summing charges or applying the covariance formula to the wrong set of components, particularly mishandling the credit risk and reserve/paid-loss covariance treatment.
The RBC formula has nested square-root covariance structures and a separate treatment for the asset and underwriting risk categories; candidates memorize the headline formula but not which risks enter which covariance block, and the arithmetic is unforgiving.
What to do instead
Reproduce the full RBC tree from memory, labeling each covariance level and which components enter it. Then work three numerical RBC problems end-to-end, checking intermediate squared terms before taking square roots.
Confusing IRIS ratios with RBC results and concluding a company is financially impaired because a single IRIS ratio is outside its usual range.
IRIS is a set of diagnostic tests with ranges, not a capital standard; the exam tests whether candidates know that an unusual ratio is an investigation trigger, and the two frameworks are studied in the same sitting.
What to do instead
Write a short contrast table: purpose, inputs, output, and consequence of failure for IRIS versus RBC. Memorize that IRIS flags for inquiry while RBC produces an action level, and practice explaining the distinction in two sentences.
Applying the wrong reinsurance accounting treatment - netting a reinsurance recoverable against reserves on the statutory balance sheet, or misclassifying an agreement as reinsurance when it transfers inadequate risk.
Statutory accounting requires gross reserves with a separate recoverable asset subject to credit for reinsurance rules, and risk-transfer testing has specific thresholds; candidates conflate GAAP presentation habits with statutory requirements.
What to do instead
State the rule in one line before answering: gross liabilities, separate recoverable, credit allowed only per collateral or authorized-status rules. Then work problems that require computing the recoverable and the surplus impact separately.
Ignoring the tax treatment of loss reserves and unearned premium reserves when computing deferred tax assets or liabilities, treating book and tax reserves as identical.
The discounting of reserves for tax purposes and the different treatment of unpaid losses create timing differences; candidates focus on the reserving mechanics and forget the tax overlay entirely.
What to do instead
Maintain a running list of book-versus-tax timing differences (reserve discounting, unearned premium, nonadmitted assets). For each tax question, explicitly write 'book basis, tax basis, difference, tax effect at 21%' before computing.
Missing the statutory surplus impact of nonadmitted assets and overstating admissible receivables, especially agents' balances and reinsurance recoverables past due.
Admissibility rules have time-based and status-based conditions that are easy to skim; candidates apply a general 'assets are assets' intuition and forget that the exam tests the specific aging thresholds.
What to do instead
Create a flashcard set of admissibility rules keyed to aging and authorization status, and practice a surplus roll-forward that starts with total assets and subtracts each nonadmitted category line by line.
Answering financial-reporting questions about the notes, management discussion, and actuarial opinion as if they were optional or interchangeable, rather than identifying which document carries which attestation.
The reporting package has several distinct components with different preparers and levels of assurance; candidates learn the reserve opinion but blur the roles of the appointed actuary, the auditor, and management.
What to do instead
Build a matrix of reporting components against preparer, audience, and assurance level. Then answer 'who signs what and to whom' questions until each row is recalled without hesitation.
Skipping the calculation of the combined ratio decomposition and reporting an operating ratio without separating underwriting results from investment results.
The underwriting exhibit aggregates losses, expenses, and premiums in a sequence that invites short-cutting; candidates compute a single ratio and lose the points awarded for the components and for the investment-income add-back.
What to do instead
Practice a fixed template: loss ratio, expense ratio, combined ratio, then add net investment income and other items to reach operating ratio. Show every line, and verify that the components sum to the reported total.
Spending disproportionate time on a single multi-part regulatory calculation and leaving later, shorter questions unanswered, or writing a formula without plugging in the given values.
Exam time pressure combined with high-value calculation items encourages perfectionism on one problem; candidates also freeze when a formula is recalled but the arithmetic path is not, and produce partial credit answers that stop short of the requested number.
What to do instead
Set a per-question time budget during practice, do a first pass answering all items you can finish in under two minutes, and always carry calculations to a final numeric answer with units. Rehearse the discipline in timed full-length practice sittings.