CAS Exam 6C Spring 2017, Question 22
Study guide: Exam 6C
A Canadian property and casualty insurance company writes insurance in an earthquake-prone region. The management of the company designs a stress testing program.
Part a (0.75 points)
Management only considers insurance risk in the stress testing as they feel it is the most significant risk. Discuss the appropriateness of this approach and justify one change if necessary.
Part b (0.75 points)
Management does not consider an earthquake scenario in the stress testing as the company has not experienced an earthquake since its inception. Discuss the appropriateness of this approach and justify one change if necessary.
Part c (0.75 points)
The company has a significant portion of its investment portfolio invested in the local real estate market. Briefly describe the interactions between risks that an effective stress testing program would likely reveal.
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