CAS Exam 9 Spring 2013, Question 21
Study guide: Exam 9
A property insurer writes two accounts with the following modeled events:
| Event | Probability | Loss for Account X | Loss for Account Y |
|---|---|---|---|
| 1 | 0.5% | 75,000 | 35,000 |
| 2 | 1.0% | 50,000 | 25,000 |
| 3 | 2.0% | 40,000 | 10,000 |
| 4 | 5.0% | 25,000 | 5,000 |
- Target return on equity = 15%.
- Probability of ruin = 2.5%.
- Account X is written first.
Part a (2 points)
Under the build up scenario, use the marginal surplus method to calculate the risk load for account X and account Y.
Part b (0.5 points)
Calculate the marginal surplus required to support Account Y.
Part c (0.5 points)
Briefly describe why the marginal surplus method fails to be renewal additive.
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