Fall 2014 Q 17 b
In sample answer part b -Sample 1,
Portfolio mix: Look at lines written (long-tail vs short tail) and and/or catastrophe prone lines.
Higher IRIS ratios on short tail lines and non-catastrophe lines might be more acceptable.
can you help me to understand this?
for IRIS 1 and 2 ratios, the higher IRIS ratios indicate that more risks related to surplus.
why it is more acceptable in short tail lines and non cat lines?
Thanks!
Comments
Short-tail lines have less reserving risk. There is less development, so the reported loss is closer to the ultimate loss. Cats imply large amounts of loss due to a single event. A line that is not exposed to cats has less high-severity event risk.
The answer suggests that having more of these two types in the portfolio mix makes that portfolio less risky. Then, it is ok to have more premium of this portfolio relative to surplus.
This is a simplistic explanation. Property is a short-tail line that is exposed to cats. In these terms, it is not clear whether having higher IRIS 1/2 ratios of a portfolio of Property is acceptable.