Question

What is the limitation of the factor-based approach in calculating RSM?

a.

It produces inconsistent results

b.

It requires extensive data analysis

c.

It may lead to higher capital requirements for companies with higher reserves

d.

It ignores the impact of reinsurance

Answer: (c).It may lead to higher capital requirements for companies with higher reserves Explanation:The factor-based approach may lead to higher capital requirements for companies with higher reserves, as it does not consider each company's view on prudence to be built.

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Q. What is the limitation of the factor-based approach in calculating RSM?

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