CAS Exam 8 Fall 2013, Question 21
Study guide: Exam 9
A property catastrophe treaty covers the layer $50,000,000 excess of $50,000,000 with an annual premium of $3,000,000 and a reinstatement provision that is 120% pro-rata as to amount with no limit on the number of reinstatements. The treaty is issued for a one-year term effective January 1, 2013.
Part a (0.75 points)
Given the three following ground-up catastrophe losses during 2013:
- A loss of $65,000,000 on June 1.
- A loss of $85,000,000 on September 1.
- A loss of $115,000,000 on November 1.
Calculate how much the ceding company pays in reinstatement premiums during 2013.
Part b (0.5 points)
Calculate the annual total reinstatement premium with the same three losses as above if the reinstatement provision was pro-rata as to amount and pro-rata to time.
Part c (0.25 points)
Briefly explain why relatively few contracts include reinstatements pro-rata as to time.
Answer this question and see the worked solution