A Report of the CAS Underwriting Risk Working Party Exhibit 8 column (10) with those implied by RBC charges under alternative approaches discussed earlier in this report. The pro forma premium to RBC underwriting risk ratios are reasonable statistics to consider, by line and for the industry overall, when investigating alternatives to the current RBC formula. An explanation of the contents of Exhibit 9 follows, phrased here in terms of the dollar amount of premium supported by a dollar of surplus and illustrated based on the average in the Average/Total row. Col (3)
Run-off Basis – Columns (3) - (7) Overall, $3.28 of premium can be supported per $1 of surplus (same values as shown in Exhibit 8) based on the current RBC parameters.
Col (4)
The indicated factors using current filtering and the empirical 87.5th percentile risk charge, before capping parameter swings and without a change in the IIO discount rate, suggest that $2.79 of premium can be supported per $1 of surplus overall.
Col (5)
Indicated with alternative filter and 87.5th percentile: $2.84 can be supported.
Col (6)
Indicated with alternative filter and curve fitting using a normal distribution: $2.26.
Col (7)
Column (6) but using lognormal distribution: $2.36.
Col (8)
One-Year Basis – Columns (8) - (11) Under the Alternative Filter and the one-year time horizon approach described above, the empirical 87.5th percentile indicates that $7.23 of premium can be supported per $1 of surplus overall.
Col (9)
Column (8) at the 95 percentile: $3.37.
Col (10)
Column (9) but using a normal distribution rather than empirical percentile: $3.05.
Col (11)
Column (10), using the lognormal rather than normal distribution: $2.65.
Exhibit 9 is calculated as the reciprocal of Exhibit E (Appendix E) in the same way that in Exhibit 8 column (10) is the reciprocal of column (9).
Casualty Actuarial Society E-Forum, Winter 2012-Volume 1
24