Definition of class in "risk class"

[Minh Ho]

Here are the Core reading, shown on page 988 of Acted CMP:

I understand that risk class is the classification of risk, such as: economic risk, insurance risk, liquidity risk.
am I right about that?
If I am wrong, which is the correct thinking?
In a capital model, do we always model as much as risk classes as possible? Or just picking some risks to model?

 

[Ian Senator]

Have a closer read of the text. 'Risk class' is not mentioned in your the Core Reading you quote. Rather, 'risks in the same class' - ie class of business, as per the text on page 987.

For your question about modelling, you need to think back to Subject CP1. A model is a simplification of reality. Do you think you should model everything or just some risks? What are the pros and cons of modelling 'too much' or 'too little'? Is there a right answer?

 

[Minh Ho]

Have a closer read of the text. 'Risk class' is not mentioned in your the Core Reading you quote. Rather, 'risks in the same class' - ie class of business, as per the text on page 987.

For your question about modelling, you need to think back to Subject CP1. A model is a simplification of reality. Do you think you should model everything or just some risks? What are the pros and cons of modelling 'too much' or 'too little'? Is there a right answer?

For the 2nd questions, I am clear that the more the model is modelling, the more complex the model it is. Simplification means we have to pick important risks and omit some less important risks out of consideration, right?
For the 1st questions, based on page 9, CMP, class of business are classified into short tail and long tail, right?

 

[Ian Senator]

For the 2nd questions, I am clear that the more the model is modelling, the more complex the model it is. Simplification means we have to pick important risks and omit some less important risks out of consideration, right?

Correct.

For the 1st questions, based on page 9, CMP, class of business are classified into short tail and long tail, right?

Yes, that's one way of classifying business. There are of course many others.