CAS Exam 7 Spring 2014, Question 8
Study guide: Exam 7
Given the following information as of December 31, 2013:
- An insurer had written only homeowners insurance until it began writing workers compensation on January 1, 2012.
- Five independent models were run for workers compensation and one independent model was run for homeowners, producing the following modeled coefficients of variation for accident year ultimate loss:
| Model 1 | Model 2 | Model 3 | Model 4 | Model 5 | |
|---|---|---|---|---|---|
| Homeowners | 5% | - | - | - | - |
| Workers Compensation | 21% | 9% | 45% | N/A | 38% |
- Model 4 failed to produce valid predictors for workers compensation.
- The claims adjusting process for homeowners has recently become automated.
- The company uses a third party to adjust medical claims for workers compensation. Claim information is received from the third party on a quarterly basis.
- In-house homeowners claims staff meet regularly with the valuation actuary.
Part a (1.5 points)
Identify and define the three main components of internal systemic risk when determining liability risk margins for a book of business.
Part b (1.5 points)
Identify one potential risk indicator for each line of business under each risk component listed in part a. above.
Part c (1.5 points)
Briefly discuss whether each indicator in part b. above would receive a more or less favorable score on a balanced scorecard.
Answer this question and see the worked solution