CAS Exam 7 Spring 2019, Question 9
Study guide: Exam 7
An insurance company specializes in coverage for Workers Compensation, Commercial Auto and General Liability. A new actuary is hired to build a reserving model.
- The model uses both internal and external variables.
- The chosen predictors are different than those selected in a previous model, but have a high correlation with claims experience.
- The model was checked for reasonableness by performing diagnostic tests on valuation outcomes.
- Data has been reconciled against the general ledger and the prior analysis.
- The actuary is not yet familiar with past processes and has not yet met with claims staff.
- The actuary models claims from all lines together.
Part a (0.75 points)
Briefly describe three main sources of internal systemic risk according to Marshall.
Part b (0.75 points)
Identify a reason why this company would score high in a balanced scorecard approach for each of the three sources of risks identified in part a. above.
Part c (0.75 points)
Identify a reason why this company would score low in a balanced scorecard approach for each of the three sources of risks identified in part a. above.
Part d (0.25 points)
Briefly describe why a portfolio with the risk indicators identified in part b. above would have a lower Coefficient of Variation (CoV) than those identified in part c. above.
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