Dear All I hope you are well For this question, what does the 'return period' column tells us? or how do we use this to compare actual and modelled/expected result? Solution compares this, eg: Trade Credit: The return periods are all less than ten years which is fairly near term and therefore does not seem unreasonable given the actual experience. Kidnap and ransom: The return periods for the loss ratios are not unreasonable given how close the actual and expected experience is. The 1-in-30 year return period for the combined ratio may or may not be an extreme result, since it depends on what has happened as to whether this result is reasonable I don't get what we are comparing? Many thanks Best regards Jun
Hi Jun For each line, we have the expected result (column 3), the actual result (column 4), and the return period. The return period gives us the likelihood of the results (4th column) obtained by the syndicate in the syndicate's capital model. For example, for the terrorism business, the return period on gross is 1-in-150 years implying this should happen once in 150 years making this an extremely low likelihood result. In discussing the results compared to expected two things are being considered What is the magnitude of the difference between the expected and the actual results, and what is the return period? For trade credit, you have the combined ratio expected of 90% and an actual of 91% so the performance was close to expectation. The return period is 1-in-2 years implying this may happen regularly. The loss ratios are discussed in the answer and because we expect the results to happen in the near term they are reasonable results. For the kidnap and ransom, the combined ratio is expected to be 82 but was 63. There is a big difference between the 2 and the return period is 1-in-30 years making this a once-in-a-generation result. There may be a need to investigate further. The answer states that the reason (obtained from the investigation) will determine if the result is reasonable or not. The loss ratios are discussed in the answer and because we expect the results to happen in the near term they are reasonable results
