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  #1061  
Old Yesterday, 11:28 AM
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LifeIsAPoissonProcess LifeIsAPoissonProcess is offline
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Originally Posted by TIA ERM 2.5.3 View Post
This is a short section because we don’t know how to do this.
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  #1062  
Old Yesterday, 04:25 PM
cwchan2580 cwchan2580 is offline
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Am i crazy? For the 2018 Exam Q21 part b - Is it reasonable to be able to calculate WTVaR allocated capital based on what the source text says?
The exam report lists out all the expectations....

It's just a sentence or two in Brehm in chapter 2.2 pages 34 and 35.... unless there are more details elsewhere
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  #1063  
Old Yesterday, 05:09 PM
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LifeIsAPoissonProcess LifeIsAPoissonProcess is offline
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Am i crazy? For the 2018 Exam Q21 part b - Is it reasonable to be able to calculate WTVaR allocated capital based on what the source text says?
The exam report lists out all the expectations....

It's just a sentence or two in Brehm in chapter 2.2 pages 34 and 35.... unless there are more details elsewhere
You're not crazy. TIA annotated the sample answer with "This question was tough. The concept of WTVaR was covered in the paper, but there were no calculations done with it. "
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Old Yesterday, 06:02 PM
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I think the explanation that’s given is that the demand curve shifts due to a change in the “quality” of the supply. Since this is a secondary effect of a shock or capital infusion, it’s safe to assume that the magnitude of the demand curve shift will be relatively smaller than that of the supply curve. When there’s a shock, capital declines so supply contracts; the implication is that the “quality” of the remaining supply also decreases since firms that didn’t go insolvent from the shock nevertheless now have less capital supporting their liabilities than they had before. This means they’re more likely to be unable to support policyholder obligations in the near future; demand contracts because the “quality” of the insurance product available isn’t as good as it was before. Since the shift in the supply curve is larger, equilibrium price still increases. If the situation were a capital infusion instead of a shock, supply increases, demand increases slightly due to improved quality of the supply (insurers are less leveraged), and equilibrium price falls.
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