CAS Actuarial Modeling and Pricing Techniques Flashcards
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What is Value at Risk (VaR) as applied in casualty actuarial risk modeling?
Answer: The maximum loss not exceeded with a specified probability over a defined time horizon
VaR at the 99th percentile means there is a 1% chance losses will exceed that threshold, providing a concise summary of downside risk used in capital modeling.
What is 'tail value at risk' (TVaR), also called Conditional Tail Expectation (CTE)?
Answer: The expected value of losses given that losses exceed the VaR threshold
TVaR/CTE is preferred over VaR in many actuarial applications because it captures the severity of extreme losses beyond the threshold, not just their probability.
In stochastic loss reserving, what advantage does a simulation model provide over a deterministic point estimate?
Answer: It produces a full probability distribution of reserve outcomes, quantifying reserve uncertainty and enabling risk-based capital assessment
Stochastic reserving methods like bootstrapping or the Mack method generate ranges and percentiles around the reserve estimate, informing capital adequacy and risk management decisions.
What is a 'copula' used for in multivariate actuarial modeling?
Answer: To model the dependence structure between multiple random variables separately from their individual marginal distributions
Copulas allow actuaries to model correlations and tail dependence between lines of business or risk factors independently of the marginal distributions, critical for enterprise risk management.
In actuarial pricing, what is the 'risk load' or 'risk margin' added to the expected loss cost?
Answer: Additional premium beyond expected losses to compensate for the variability and uncertainty in actual loss outcomes
The risk load compensates the insurer for taking on uncertain liabilities; it reflects the cost of capital required to support reserve variability and is separate from the expense and profit loads.
What is the 'chain ladder' (development) method's primary assumption in loss reserving?
Answer: Future loss development patterns will be consistent with historical development patterns observed in the triangle
The chain ladder method assumes historical age-to-age development factors are predictive of future development, making pattern stability a critical condition for its reliability.