CAS Exam 7 Spring 2012, Question 18
Study guide: Exam 9
Two insurance companies want to select appropriate risk measures, based on their aggregate loss distributions, for capital allocation purposes. The four risk measures under consideration are:
- Standard deviation
- Semi-standard deviation
- VaR
- TVaR
Part a (1.5 points)
Company A writes homeowners and commercial property insurance in several coastal states. Its main concern is hurricane risk. Assess the appropriateness of each risk measure for Company A and determine the best one.
Part b (1.5 points)
Company B writes personal auto insurance in several mid-western states. Its main concern is the price adequacy of their book. Assess the appropriateness of each risk measure for Company B and determine the best one.
Answer this question and see the worked solution