2014.Spring 27
would the Substantially all or the self-evident tests be accepted on an exam given now?
it seems like the examiner's report was only accepting mathematical tests
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would the Substantially all or the self-evident tests be accepted on an exam given now?
it seems like the examiner's report was only accepting mathematical tests
Comments
In this question, they only accepted the quantitative tests as " risk transfer tests." You get a clue that they do this from the way they ask about reinsurance accounting for when the test is failed: that fits the definition of the "substantially all" test. I don't think CAS would discredit the qualitative tests in all cases.
One of the answers in part B is "If there is a large tail in distribution of loss. This would suggest ERD as it would take it into account." Can you explain why ERD takes the long tail into account and the 10-10 rule does not?
10-10 rule works off of single-shot events. They have an expected loss and a probability. ERD puts together an expected loss from the loss distribution.
It is called a "fat tail," not a "long tail." (Long tail means something else.) It means higher loss outcomes have higher probabilities than the Normal curve would indicate. Put another way, the chance of high loss is relatively higher. This works to increase the expected loss that goes into ERD.