CAS Exam 6C Spring 2017, Question 17
Study guide: Exam 6C
A property and casualty insurance company provides earthquake insurance to their insureds and considers purchasing a catastrophe treaty. However, it has struggled with finding an accurate way of quantifying earthquake risk. Earthquake simulation model results show that the probability of a catastrophic event is extremely low.
Part a (1 point)
Describe "reasonably self-evident" risk transfer and discuss whether it applies to this treaty.
Part b (1 point)
The use of reinsurance pricing assumptions could help assess risk transfer. Describe one advantage and one disadvantage of this method.
Part c (1 point)
Briefly describe four practices that the company could use to improve the earthquake risk estimation process and strengthen the catastrophic risk management.
Answer this question and see the worked solution
Concepts tested
- Risk Transfer
- Reinsurance Accounting
- Earthquake Exposure Risk Margin
- Catastrophe Modelling
- Model Risk