CAS Exam 9 Spring 2017, Question 16
Study guide: Exam 9
A company is expected to experience a loss in one year according to the following table:
| Loss Amount | Probability |
|---|---|
| $5 million | 90% |
| Catastrophic | 10% |
- The company currently (t=0) holds $10 million in assets.
- The company expects its assets to increase in value by 5% by the end of this year (t=1).
Part a (1 point)
Based on the table above, calculate the catastrophic loss amount that would give an expected policyholder deficit (EPD) ratio of 5% at t=1.
Part b (0.5 points)
Assuming no changes to the company's loss distribution, calculate the amount of capital that would have to be added at t=1 to decrease the EPD ratio to 1%.
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