Hi all. I have attempted past exam papers from 2010 to 2013. April 2013 Question 1 by far the most daunting For part (v) can anyone help me with the following : 1) How exposure to catastrophe implies a lower internal SCR compares to std formula? 2) reserve risk for 1 year compared to ultimate is almost the same,why is that? My understanding is that reserve risk pertains to premium already earned, so contains elemens of outstanding claims and IBNR only. Only limited development could happen for this risk. It is also explained by lo exposure to casualty which would have had higher development in the future due to upwards development of outstanding claims and IBNR. 3) 1 year scr close to ultimate scr. Explaination given is because low exposure to casualty. Is it not because of new business that will be written in the future, i.e. premium risk? 4) Big 1yr to ultimate jump on attritional risk (but this seems to diversify away).May also be due to choice of recognition factors & earnings. What does that mean? 5)insurance risk diversification benefit. CAT is even more dominanting the 1 year picture. Meaning of this?
Plenty of people struggle with this. See my previous post: https://www.acted.co.uk/forums/index.php?threads/april-2013-q1-v.10685/ As you say, there is limited future development. In other words, future development mostly occurs in the first year and there is little risk for time periods after the first year, so the ultimate SCR will be similar to the 1 year SCR. See my answer to your second question. I think this is just saying that the risk for these claims occurs further in the tail (ie after the first year), perhaps due to unusual earning patterns. Mind you the examiners sound pretty doubtful about this themselves! I think they're saying that the CAT risk has a large diversification benefit, and since CAT risk is very dominant in the 1 year results, this is driving the overall diversification figure. See link above for further explanation.
