CAS Exam 6C Fall 2017, Question 26
Study guide: Exam 6C
A.M. Best analyzed two property and casualty insurance companies for their stress-tested Best's Capital Adequacy Ratio (BCAR) score, and determined the following tolerance levels:
- Company A (rated A- for balance sheet strength): 30 points
- Company B (rated A- for balance sheet strength): 0 point
Additionally, the following information is available for the two companies:
| Company | Company profile | Primary catastrophic exposure | Average combined ratio for the last ten years | Standard deviation of combined ratio for the last ten years |
|---|---|---|---|---|
| A | Subsidiary of an international insurance group | Earthquake | 95% | 9% |
| B | Domestic mutual company | Tornado | 91% | 15% |
Describe three factors that could explain the lower tolerance level for Company B.
Part a (1.5 points)
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