Which line of business should long-tail lines maintain for Ratio targets?

Prepare for the CAS Exam 6 with detailed study materials. Use flashcards and multiple-choice questions, each with hints and explanations, to get exam-ready!

Multiple Choice

Which line of business should long-tail lines maintain for Ratio targets?

Long-tail lines have claim development and reserving patterns that unfold over many years. To judge profitability and reserve adequacy, the ratio targets must be set using the same line of business they pertain to, so the metric reflects that line’s true performance over its entire development period. If the basis were a different line (with different tail behavior), the ratio could mislead—underestimating or overestimating risk and profitability due to mismatched development patterns. By maintaining ratio targets within the same long-tail line, you preserve comparability across time and ensure that capital and pricing decisions are aligned with the actual risks of that line. Other bases would mix different tail characteristics and distort the assessment, so the long-tail line should maintain its own ratio targets.

Long-tail lines have claim development and reserving patterns that unfold over many years. To judge profitability and reserve adequacy, the ratio targets must be set using the same line of business they pertain to, so the metric reflects that line’s true performance over its entire development period. If the basis were a different line (with different tail behavior), the ratio could mislead—underestimating or overestimating risk and profitability due to mismatched development patterns. By maintaining ratio targets within the same long-tail line, you preserve comparability across time and ensure that capital and pricing decisions are aligned with the actual risks of that line. Other bases would mix different tail characteristics and distort the assessment, so the long-tail line should maintain its own ratio targets.

More practice questions