Hi, I think this is a simple Reinsurance pricing question but I don't understand how to do it. Anyone?
We couldn't understand what was going on here either (neither in the question nor the solution...). A number of students have raised this query - I have passed it on to the examiners, and they have said they'll get back to me when they've worked out what's going on. They need to contact the original question-writer. I'll post something here when I receive a reply. But it won't be before Monday...!
OK - here's the explanation from the Profession: The question is not worded very well. It was meant to say that the premium for the basic XL contract is 25% of £1m. The premium for the RPP contract (which pays out the XL premium in the same circumstances) is thus 25% of 25% of £1m. Net this down for expenses and you get the risk premium. Thankfully it's only a small part of the question so I hope it wouldn't have influenced anyone's chances of passing.
i'm curious, i read the question, misunderstood, came up with a solution which is (theoretically) wrong and coincidentally got the right answer. Would the markers have given me any marks (assuming markers didn't understand the question too well either)? my calcs: RP: 250k *0.8 = 200k * 5 (for 4 free reinstatements) = £1m RPP: 200k (from above) + 750k (3 paid reinstatements) = £950k diff is £50k
Who knows! I'd have thought they'd have given marks for anything "reasonable", particularly as the question was a bit odd.
