• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

SP 8 April 2012 Q8 Part (vi)

E

E Akshay

Member
Hello,

I'm unable to understand the calculation for this part. Can you please help me?
 
Since the total losses to the layer will be unchanged and the loss ratio is to be maintained, this means that the total premiums (including reinstatement premiums) will therefore also need to be the same.

If R is the new rate on line, then the initial premium received will be R*£5m.

If C is the total amount of cover that needs to be reinstated over an n-year period based on an event set of past claims, then the total reinstatement premiums payable (@50%) are RC*0.5, which equates to RC/2n per year on average.

Add this average annual reinstatement premium payable to the initial premium to get a total estimated annual premium of 5R + RC/2n. This needs to equal the original premium for layer 1 which was £1m (= £5m*20%).

Then rearrange the equation to solve for R.
 
You must log in or register to reply here.
Back
Top