CAS Exam 7 Spring 2013, Question 16
Study guide: Exam 9
An insurer with a large, stable book of personal auto insurance is building an internal model for solvency. The actuary building the model assumes that the loss ratios are positively correlated from one year to the next.
Part a (0.5 points)
Provide two reasons why this assumption is reasonable.
Part b (0.5 points)
Describe how the model should incorporate this assumption.
Answer this question and see the worked solution