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April 2021 Q7.iii

P

PBhella

Keen member
Hi, we've been asked to calculate the percentage change in reinsurer's proposed reinsurance rate. I've used the following method which wasn't shown in the Examiner's report but gave roughly the correct answer. The answer in the report is 194.52%. Is the following approach correct too?

Net ULR/Gross ULR = Gross Prems/(Gross Prems - RI Prems) - since the RI recovery to date is 0

Equation 1:
Gross Prems/(Gross Prems - RI Prems) = 1.06
Gross Prems = 1.06*RI Prems/0.06

Equation 2:
Gross Prems/(Gross Prems - RI Prems*(1+X)) = 1.20 - where X = proposed increase in RI rate
Gross Prems = 1.2*RI Prems*(1+X)/0.2

Equating 1 and 2:
53/3*RI Prems = 6*RI Prems*(1+X)
X = 35/18
X = 1.94444...
X = 194.44 % (2 d.p)

Thanks
 
Yes, that's fine - it's just rounding differences. Mini-ASET gives a full solution including your approach.
 
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