CAS Exam 6C Fall 2014, Question 13
Study guide: Exam 6C
Part a (2 points)
Describe four differences between the operations of the Facility Association Residual Market (FARM) and a Risk Sharing Pool (RSP).
Part b (0.5 points)
Briefly explain the rationale for the following rules implemented for the Ontario RSP:
- i. The pool covers only 85% of every risk transferred.
- ii. The maximum total allowable transfer to the RSP is 5% of the member's voluntary private passenger non-fleet written exposures.
Part c (0.5 points)
A province decides to create a risk sharing pool to offer overland flood coverage for personal property. There are two options considered for determining companies' participation ratios in the results of this newly created pool:
- Option A: Pool results are shared in proportion to a company's market share in personal property insurance, written by the company in the province.
- Option B: Pool results are shared in proportion to a company's market share in personal property plus overland flood insurance, written by the company in the province.
Evaluate which option is preferable to achieve equitable sharing of RSP results.
Answer this question and see the worked solution