ST3 Apr 2009 Q6 (ii)

[RedCoat]

Hello,

This question states that we have Cat XoL RI of "0.5% in excess of 0.05% of the total sum insured for the book at the date of loss". This comes with one free reinstatement.

We have a loss of £33.7m in October, where the sum insured is estimated to be £63.5bn. This gives an attachment of 0.05% * £63.5bn = £31.75m.

I understand up to here in the solution. The solution then says that we therefore recover 33.7 - 31.75 = £1.95m. Based on the wording of the cover, I thought that the limit of our RI would be 1.005 * 31.75m = 31.90875m (i.e. 0.5% in excess of the attachment). Now I understand that this gives a ridiculously small limit for the RI given the attachment, so I must be misunderstanding, but I'd appreciate if anyone could explain why please? Does the 0.5% refer to a LR? Is it 0.5% of the SI in excess of 0.05% of the SI (in which case is this not terrible wording??).

So yeah then in my solution we only recover 31.90875 - 31.75 = £0.15875m. But clearly this is wrong! Any help much appreciated. Thanks!

 

[Jammy]

Hello RedCoat,

It is indeed implying '0.5% of the SI in excess of 0.05% of the SI'.
To be honest, my first interpretation of the Qn wording was exactly this, so I wouldn't say it is terrible wording, imo.

 

[RedCoat]

Cheers Jammy, just me being daft then!