CAS Exam 7 Spring 2018, Question 12
Study guide: Exam 7
An insurer is using the following information without adjustment to build a stochastic loss reserve model for its property exposures in a coastal area:
| Accident Year | Number of Hurricanes | Number of All Other Peril Events | Losses from Hurricanes ($000) | Losses from All Other Perils ($000) |
|---|---|---|---|---|
| 2012 | 0 | 4,750 | 0 | 54,625 |
| 2013 | 1 | 5,150 | 250,000 | 60,255 |
| 2014 | 0 | 5,000 | 0 | 60,000 |
| 2015 | 0 | 5,300 | 0 | 65,190 |
| 2016 | 0 | 4,900 | 0 | 61,250 |
| Total | 1 | 25,100 | 250,000 | 301,320 |
- The data is valued as of June 30, 2017.
- The underlying exposures for the book of business are not expected to change.
- The resulting model produced an
R^2value greater than 99%. - The insurer will perform a retrospective test of the model using ten years of data valued as of June 30, 2027.
- Assume no data errors.
Part a (1 point)
Identify and briefly describe two sources of internal systemic risk applicable to this model.
Part b (1 point)
Draw a histogram assuming no hurricane losses in the next ten years and briefly explain your selection of the shape.
Answer this question and see the worked solution