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X Assignment - X6.1 (ii)

D

David

Keen member
Hi,

In the solution to this question I can understand how the £1.25m figure is dervied (i.e. 0.4Y=0.5 ==> Y=0.5/0.4=5/4=1.25)

However, I am struggling when it comes to deriving the Surplus RI figures. Specifically, I am unsure how to derive the £13.75m & £27.5m figures.

I tried to find the Maximum Covered Loss for the Surplus RI Treaty as:= (1+L)*r = (1+10)*1 = 11m

... but I still cant seem to find a way towards these figures. Could you please help me understand where these numbers come from and how to derive them?

Thank you in advance!
 
David said:
Hi,

In the solution to this question I can understand how the £1.25m figure is dervied (i.e. 0.4Y=0.5 ==> Y=0.5/0.4=5/4=1.25)

However, I am struggling when it comes to deriving the Surplus RI figures. Specifically, I am unsure how to derive the £13.75m & £27.5m figures.

I tried to find the Maximum Covered Loss for the Surplus RI Treaty as:= (1+L)*r = (1+10)*1 = 11m

... but I still cant seem to find a way towards these figures. Could you please help me understand where these numbers come from and how to derive them?

Thank you in advance!
Click to expand...
Hi David? Did you get the 27.5 figure
 
TIBERIUSNYABIGO said:
Hi David? Did you get the 27.5 figure
Click to expand...
Hi,

It's been a while since I looked at this but I don't think I was able to get the 27.5 figure and I just moved on. Sorry I can't be of much help, but hopefully someone can help explain this part as well.
 
If the cedant retains the maximum 1m and cedes the maximum number of lines (ie 10), then the largest EML that can be ceded through the surplus treaty is 11m. (In other words, we use the formula from part (i), EML = (1+l)*r = 11*1m = 11m.)

Now remember that the quota share inures to the benefit of the surplus arrangement. In other words the EML of 11m is AFTER the quota share has been applied. Removing the effect of the quota share gives 11m/0.4=27.5
 
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