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September 2008 Q2 (i)

G

Geraldine

Member
I'm not sure how you arrive at the assumptions provided in the revision booklet solution - which seem similar to the examiners reports.

"Assume there is no maximum retention on individual policy, and that the global reserve is not reduced to allow for reinsurance"

What do these really mean, and what would prompt you to come up with these?
 
We're asked to state any assumptions so that should encourage you to consider what you are assuming as part of the calculation, so that should make you question what you are doing throughout the calculation.

The details of the reinsurance arrangements show quota share arrangements. If you made an assumption that said "the quota share arrangements are the only reinsurance on these blocks of business" that would be fine. Here, the examiners (and therefore our solution) makes an assumption that there is no a maximum retention per policy (to cap large losses).

We're also given details of the global expense and misc reserve. In the calculation, we're told to use net (of reinsurance) reserves for various calculations. So, you might have assumed that this global reserve is not reduced in any way for reinsurance as other reserves are (so, the gross figure = net figure). If you did reduce it for reinsurance in some way, that would have been fine, as long as you gave your assumption clearly.

I hope this helps. This is an unusual question and remember other approaches (and therefore assumptions) would have been given credit too.

Sarah
 
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