CAS Exam 9 Spring 2019, Question 11
Study guide: Exam 9
Assume the following for a company that writes multiple lines of business:
- Beginning loss estimate is $20,000
- Loss estimates have equal probability of developing adversely by 15% or favorably by 10% each year
- Beginning Assets are $23,000
- Return on invested assets is 5% per year
Part a (1.25 points)
Calculate the Expected Policyholder Deficit (EPD) Ratio at the end of year 2.
Part b (0.5 points)
Calculate the asset value needed at the end of year 2 to ensure a 5% EPD ratio.
Part c (0.5 points)
Explain why an EPD ratio capital requirement may exceed a rating agency capital requirement.
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