CAS Exam 7 Spring 2016, Question 24
Study guide: Exam 9
An insurance company wants to allocate capital to a newly purchased portfolio based on the portfolio's aggregate loss distribution.
The portfolio contains the following two lines of business:
- Commercial Property subject to both earthquake and hurricane risks
- Excess Casualty with a large policy limit
The following risk measures are under consideration:
- Standard deviation
- TV@R
- TV@R with transformed probabilities
Part a (1.5 points)
Evaluate the appropriateness of these three risk measures for this portfolio and recommend which measure the company should adopt.
Part b (0.5 points)
Identify one additional risk measure that would be suitable for this capital allocation and briefly describe its appropriateness for this portfolio.
Answer this question and see the worked solution