CAS Exam 9 Spring 2018, Question 16
Study guide: Exam 9
The co-measures table below displays simulated values of the aggregate loss distribution for a company in descending order. The component loss sources underlying the aggregate loss are displayed for each scenario.
| Sorted Scenarios | Aggregate Underwriting Loss | Line A Underwriting Loss | Line B Underwriting Loss |
|---|---|---|---|
| 100 | 1,000 | 700 | 300 |
| 99 | 500 | 400 | 100 |
| 98 | 200 | 0 | 200 |
| 97 | 100 | 0 | 100 |
| 96 | 0 | 0 | 0 |
| 95 | 0 | 0 | 0 |
| 94 | 0 | 0 | 0 |
| 93 | 0 | 0 | 0 |
| 92 | 0 | 0 | 0 |
| 91 | 0 | 0 | 0 |
| ⋮ | ⋮ | ⋮ | ⋮ |
| 1 | 0 | 0 | 0 |
- Ignore other risks for the company.
- The target return on capital is 15%.
Part a (3 points)
Calculate the 98% VaR risk capital allocated to Line A in proportion to the 98% VaR, the 98% Co-TVAR, and the allocation by Percentile Layer method.
Part b (0.75 points)
Explain the characteristics of each methodology above that gives rise to the different results.
Part c (0.75 points)
Calculate premium net of expenses for Line A using the 98% VaR risk capital allocated using the Percentile Layer method.
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