CAS Exam 6C Fall 2017, Question 18
Study guide: Exam 6C
The following Probable Maximum Loss (PML) outputs from an earthquake model are available. All amounts are in millions of dollars.
| Return period | Eastern Canada | Western Canada |
|---|---|---|
| 100 years | 400 | 200 |
| 250 years | 600 | 350 |
| 500 years | 1,000 | 600 |
The insurance company does not purchase reinsurance and has $3 billion in surplus. The company has no earthquake premium reserves.
The insurer is progressively phasing in from a 420-year return period in 2014 to a 500-year return period in 2022.
Part a (1.5 points)
Calculate the insurance company's earthquake reserves as at December 31, 2016.
Part b (2 points)
Identify and briefly describe four considerations when evaluating PML estimates from an earthquake model.
Answer this question and see the worked solution
Concepts tested
- Earthquake Reserves
- Earthquake Exposure Risk Margin
- Probable Maximum Loss
- Catastrophe Modelling
- MCT
- Model Risk