CAS Exam 9 Spring 2018, Question 15
Study guide: Exam 9
An insurer has exposure to two independent perils, wind and earthquake:
- Wind has a 15% chance of a $5 million loss, and an 85% chance of no loss.
- Earthquake has a 1% chance of a $15 million loss, and a 99% chance of no loss.
Using the capital allocation by percentile layer methodology with a 99.5% VaR capital requirement, determine how much capital should be allocated to each peril.
Part a (2 points)
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