Question

What is the main limitation of the factors-based approach in calculating Required Solvency Margin (RSM)?

a.

It does not consider operational risks such as frauds and defaults.

b.

It requires complex calculations.

c.

It is not approved by insurance regulators.

d.

It is not suitable for large insurance companies.

Posted under IC 92 Actuarial Aspects of Product Development

Answer: (a).It does not consider operational risks such as frauds and defaults. Explanation:The factors-based approach in calculating RSM does not take into account operational risks such as frauds in the business, defaults on investments, and escalation of expenses.

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Q. What is the main limitation of the factors-based approach in calculating Required Solvency Margin (RSM)?
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