CAS Exam 9 Spring 2017, Question 17
Study guide: Exam 9
An insurer faces the incurred loss scenarios in the table below. Only one scenario can occur in the coming year. The insurer uses VaR (99%) as the capital requirement.
| Scenario | Probability | Water Loss | Wind Loss | Total Loss |
|---|---|---|---|---|
| 1 | 0.50 | 0 M | 0 M | 0 M |
| 2 | 0.25 | 20 M | 5 M | 25 M |
| 3 | 0.15 | 30 M | 20 M | 50 M |
| 4 | 0.09 | 30 M | 45 M | 75 M |
| 5 | 0.01 | 25 M | 75 M | 100 M |
Part a (2.75 points)
Allocate the capital to each peril using capital allocation by percentile layer.
Part b (0.5 points)
Without performing any calculations, explain how switching to coTVaR(99%) would impact the capital allocated to each peril.
No current syllabus covers this question; it is kept for the record.
Answer this question and see the worked solution