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September 2013 Question 2 (iii)

  • Thread starter Euodia Vermeulen
  • Start date
E

Euodia Vermeulen

Member
Hi

I have a query with regards to Question 2 iii in the September 2013 paper.
It states that the “quotes are 50% higher than the average unadjusted annual historical cost over $50m over the last 20 years.”

So the reinsurer is basically valuing the burning cost 50% higher than the company/captive did.

However, in the examiner’s report it does not refer to any add ons that the reinsurer may charge e.g. profit, commission, risk margin, etc.
Shouldn’t these also be considered in your answer to explain the 50% higher quotes?

Thank you.
 
We thought so too. This was queried with the examiners at the time, who told us that since the quotes are a multiple of the burning cost, rather than being based on market rates, factors like loadings and the underwriting cycle will not be relevant. We weren't entirely convinced by that explanation, as we think most students will have interpreted the question as you have done.
 
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