CAS Exam 8 Fall 2013, Question 24

Study guide: Exam 9

The following Occurrence Exceedance Probability curve is available for an insurance company's portfolio:

Return Period	Occurrence Exceedance Probability	Loss
10,000	0.0001	$200,000,000
500	0.0020	$50,000,000
200	0.0050	$20,000,000
100	0.0100	$12,000,000
50	0.0200	$7,000,000
33	0.0300	$3,500,000
25	0.0400	$1,500,000
20	0.0500	$500,000

Part a (1 point)

The insurer specifies that its acceptable risk level is 1-in-250 year PML. Define PML and calculate the 1-in-250 year PML.

The insurer decides to buy property catastrophe reinsurance protection up to the 1-in-500 year PML in the following treaties:

Quota share, where 30% is ceded up to a $40 million loss limit, which inures to the benefit of the following:

100% placed 1st layer property catastrophe excess of loss treaty $6 million xs $4 million
90% placed 2nd layer property catastrophe excess of loss treaty $10 million xs $10 million
75% placed 3rd layer property catastrophe excess of Loss treaty $30 million xs $20 million

During the treaty year, the insurer suffers a $45 million earthquake loss.

Calculate the amount of loss ceded to each of the reinsurance treaties and the net retained loss by the primary insurer.