Sep 2005

Discussion in 'SA3' started by jrpfinch, Apr 9, 2014.

  1. jrpfinch

    jrpfinch Member

    Question 2 seems odd (and I work for a reinsurer)

    The answer seems to imply that the reinsurer isn't pricing treaties individually. If the reinsurer were treaties individually you would just divide the actual premium by the risk premium for a rate adequacy index. The answer seems to suggest building a hugely complicated DFA or similar...

    Or is it implying you use all your up-to-date information to effectively go back and reprice all your old business on an "as-if" basis?

    Either way seems hugely complicated. Wish we had the resource to do that.

    Not sure I understand the RPP premium answer either but might just let that one go. Seems unlikely to come up again.
     
  2. Ian Senator

    Ian Senator ActEd Tutor Staff Member

    Hi

    You'll find numerous threads posted before in this forum about the questions you raise.
    Bottom line is not to worry too much about it!

    Ian
     
  3. Sherwin

    Sherwin Member

    Regarding the price of the RPP cover, I don't think the relation of 250K/1M exsits. The original XL policy covers five total limit losses but the RPP only covers four reinstatement premium. So they have no proportional relationship, strictly speaking.
     
  4. Yoages

    Yoages Member

    It took me a while but I got my head around it.
    You are charging 250/1000 = 25% for reinstatement of 1m.
    Risk premium is 80% of 25% = 20%
    Therefore, Chances of reinstatement happening is 20% only.

    Your payout for 1 resinstatement is 250,000. Therefore Risk Prem for RPP = 20% * 250,000 = 50,000

    For 3 paid reinstatements to happen, RP = 50,000 * 3 = 150,000. (Since chance of Reinstatements happening is 20% irrespective of number of reinstatements)

    Hope this helps.
     
  5. Sherwin

    Sherwin Member

    There is a scenario that produces a bit gap between the original excess-of-loss (XOL) cover and the RPP. That is the last limit.

    The XOL cover with 4 reinstatements has totally 5 total loss limit cover. When the original XOL cover exhausts the first 4 limits, the last one limit will not trigger any response from the RPP. So that is my comment.
     

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