CAS Exam 6C Spring 2014, Question 16
Study guide: Exam 6C
A property and casualty insurance company is exposed to earthquake risk through its operations in British Columbia; however, it has struggled with finding an accurate and consistent way of quantifying this risk. Several measures, including Probable Maximum Loss (PML), have been used, but the results have varied significantly from one year to the next. This concerns senior management, as they are unsure that the company's financial resources would be sufficient in the event of a severe earthquake.
Part a (1.5 points)
Identify three key principles in managing earthquake risk, and briefly describe how a failure in each may be leading to the problems experienced by this insurance company.
Part b (1 point)
Briefly describe four practices the company could use to improve the earthquake risk estimation process and achieve strong catastrophic risk management.
Part c (0.5 points)
Identify two types of financial resources that an insurer can use to support earthquake exposures.
Answer this question and see the worked solution
Concepts tested
- Probable Maximum Loss
- Earthquake Reserves
- Earthquake Exposure Risk Margin
- Catastrophe Exposure Management
- Capital and Surplus