PROCEEDINGS May 15, 16, 17, 18, 2005 - Casualty Actuarial Society

78 RISKINESS LEVERAGE MODELSare measured after reflecting the cost of carrying capital to supportboth premium written and loss reserves, which is especiallyimportant for long-tailed casualty lines.While actuarial literature frequently refers to risk preferencesof the capital provider, little mention is made of the riskmeasurementpreferences of the actuary. Good arguments canbe made for both approaches to measuring exposure to risk ofloss from insured events: The choice is either to allocate costsor to allocate capital. The Return on Risk Adjusted Capital approachbased upon riskiness leverage models can be modified toreflect the opportunity cost of holding capital to support writtenpremium and loss reserves, while still providing a metric that isunderstandable to financially oriented non-actuaries.