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Sep 2005

J

jrpfinch

Member
Question 2 seems odd (and I work for a reinsurer)

The answer seems to imply that the reinsurer isn't pricing treaties individually. If the reinsurer were treaties individually you would just divide the actual premium by the risk premium for a rate adequacy index. The answer seems to suggest building a hugely complicated DFA or similar...

Or is it implying you use all your up-to-date information to effectively go back and reprice all your old business on an "as-if" basis?

Either way seems hugely complicated. Wish we had the resource to do that.

Not sure I understand the RPP premium answer either but might just let that one go. Seems unlikely to come up again.
 
Hi

You'll find numerous threads posted before in this forum about the questions you raise.
Bottom line is not to worry too much about it!

Ian
 
Regarding the price of the RPP cover, I don't think the relation of 250K/1M exsits. The original XL policy covers five total limit losses but the RPP only covers four reinstatement premium. So they have no proportional relationship, strictly speaking.
 
Sherwin said:
Regarding the price of the RPP cover, I don't think the relation of 250K/1M exsits. The original XL policy covers five total limit losses but the RPP only covers four reinstatement premium. So they have no proportional relationship, strictly speaking.
Click to expand...

It took me a while but I got my head around it.
You are charging 250/1000 = 25% for reinstatement of 1m.
Risk premium is 80% of 25% = 20%
Therefore, Chances of reinstatement happening is 20% only.

Your payout for 1 resinstatement is 250,000. Therefore Risk Prem for RPP = 20% * 250,000 = 50,000

For 3 paid reinstatements to happen, RP = 50,000 * 3 = 150,000. (Since chance of Reinstatements happening is 20% irrespective of number of reinstatements)

Hope this helps.
 
There is a scenario that produces a bit gap between the original excess-of-loss (XOL) cover and the RPP. That is the last limit.

The XOL cover with 4 reinstatements has totally 5 total loss limit cover. When the original XOL cover exhausts the first 4 limits, the last one limit will not trigger any response from the RPP. So that is my comment.
 
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