CAS Exam 6C Fall 2016, Question 25
Study guide: Exam 6C
A property and casualty insurance company began writing insurance on January 1, 2014. Since the company is a startup, it purchased a 50% quota share reinsurance treaty for accident year 2014 and accident year 2015.
The margins for adverse deviations are as follows:
- Claims development (gross and ceded) = 20%
- Investment return rates = 25 basis points
- Recovery from reinsurance ceded = 1%
The discount rate is 3%.
Part a (0.75 points)
Based on the Canadian Institute of Actuaries' Consolidated Standards of Principle (CSOP) identify the range of margin for adverse deviation for:
- i. claims development,
- ii. recovery from reinsurance ceded, and
- iii. investment return rates.
Part b (0.75 points)
Comment on the company's operations based on the selections of the margins for:
- i. claims development,
- ii. recovery from reinsurance ceded, and
- iii. investment return rates.
Part c (0.5 points)
The margin for adverse deviations for investment return rates addresses several different types of risk. Briefly describe two of them.
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