CAS Exam 6C Spring 2017, Question 19
Study guide: Exam 6C
The following information is available for a property and casualty insurance company as at December 31, 2016. All amounts are in thousands of dollars ($000s).
| Value | |
|---|---|
| PML 500, East Canada | 80,000 |
| PML 250, East Canada | 20,000 |
| PML 500, West Canada | 300,000 |
| PML 250, West Canada | 120,000 |
| Common Shares Issued and Paid | 55,000 |
| Retained Earnings | 175,000 |
| Accumulated Other Comprehensive Income | 40,000 |
The company's earthquake risk is managed via the following reinsurance coverage for any earthquake occurrence:
| Layer | Ceded to Reinsurers |
|---|---|
| 25,000 xs 0 | 0% |
| 25,000 xs 25,000 | 50% |
| 100,000 xs 50,000 | 90% |
| 100,000 xs 150,000 | 100% |
The insurance company does not have earthquake premium reserves.
Part a (2.25 points)
Calculate the insurance company's earthquake reserves as at December 31, 2016 with the phase-in to the countrywide PML500 requirement.
Part b (0.5 points)
Describe an alternate approach to determine earthquake reserves for insurance companies that do not use models.
Answer this question and see the worked solution