CAS Exam 6C Fall 2013, Question 32
Study guide: Exam 6C
ABC Insurance Company purchases a catastrophe treaty on January 1 at a rate of 5% of gross earned premium. This treaty will cover losses resulting from a catastrophic event generating a loss exceeding 10% of gross earned premium. The treaty limit is 100% of gross earned premium.
Part a (0.75 points)
If no catastrophe occurs, briefly explain how the purchase of this reinsurance treaty will affect the company's:
- i. Surplus
- ii. Net loss reserve
- iii. Investment income
Part b (0.75 points)
If there is a catastrophe generating a loss of 50% of gross earned premium, briefly explain how the purchase of this reinsurance treaty will affect the company's:
- i. Surplus
- ii. Net loss reserve
- iii. Investment income
Assume that non-catastrophe loss levels are unaffected by the catastrophe event.
Answer this question and see the worked solution