CAS Exam 9 Spring 2015, Question 17
Study guide: Exam 9
A well-capitalized reinsurance company allocates its risk capital into the following three risk categories:
- Premium risk
- Reserve risk
- Interest rate risk
The company writes only the following two lines of business, which have similar expected losses:
- Line A: Short-tailed property catastrophe reinsurance
- Line B: Long-tailed casualty reinsurance
The company wants to further allocate the capital for each of those three risks sources to Line A and Line B.
Part a (1.5 points)
Explain which line of business (A or B) should receive a higher allocation of capital for each of premium, reserve, and interest rate risk.
Part b (0.75 points)
Discuss how the choice of risk measure between value at risk (VaR) and conditional tail expectation (CTE) is expected to impact the allocated capital to line A.
No current syllabus covers this question; it is kept for the record.
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