Allocation of Surplus Based Upon Right Tail Deviation. Bob Bear PXRE Corporation CARE 6/99. Introduction.
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Allocation of Surplus Based Upon Right Tail Deviation
Expected Policyholder Deficit has become a widely accepted method of assessing adequacy of surplus to support a book of business. It is an understandable way to quantify management’s risk tolerance level.
(1) EPD is not additive for layers (Shaun Wang, “An Actuarial Index of the Right-Rail Risk”, NAAJ, April 1998). Refer to 1998 PCAS paper by Wang.
(2) EPD produces counterintuitive results (e.g., EPD is bigger for a Gamma distribution than a Pareto); see 8/98 CARE presentation on “Getting to E in ROE” by Todd Bault.