In question 5.6 20% Q.S. with re-insurer x then .5 million to 1.25 million with Y and further with re-insurer's Z Ans-1 calculate the amounts paid by each of the four parties ? solutions says X-0.4 Y-0.75 Z-0.35 Insurer-0.5 but I feel that X=0.2 x 2= 0.4 I=0.5 total equals 0.9 remaining = 2-.9=1.1 Y=1.1-0.5=0.6 Z-Nil Kindly throw some light on this solution-thanks-6.9.09
Firstly, your answer doesn't work because I + R(x) + R(y) + R(z) must equal the gross claim amount, ie 2. Reinsurer Y pays net (of reinsurer X) claims between 0.5 and 1.25. We're agreed that reinsurer X pays 0.4, which leaves the insurer with a net amount of 1.6. The insurer pays the first 0.5 of this. Reinsurer Y pays between 0.5 and 1.25 (ie 0.75 in total). Reinsurer Z pays the rest (ie 1.6 - 0.5 - 0.75 = 0.35).
