CAS Exam 8 Fall 2014, Question 22
Study guide: Exam 9
The following information is given for a one-year reinsurance treaty effective January 1, 2012.
| Risk | Effective Date | Insured Value | Loss | Loss Date |
|---|---|---|---|---|
| 1 | June 1, 2011 | $200,000 | $100,000 | March 1, 2012 |
| 2 | January 1, 2012 | 500,000 | 400,000 | June 1, 2012 |
| 3 | June 1, 2012 | 1,500,000 | 1,500,000 | September 1, 2012 |
Part a (0.5 points)
Calculate the reinsurer's loss liability for a 30% quota share agreement written on a risks attaching basis.
Part b (1 point)
Calculate the reinsurer's loss liability for a 5-line surplus share agreement written on a losses occurring basis with a retained line of $100,000.
Part c (1 point)
The primary insurance company purchased a treaty on a risks attaching basis for the time period from January 1, 2013 to December 31, 2013 time (as printed). They then decided to purchase the same treaty but on a losses occurring basis for the time period from January 1, 2014 to December 31, 2014.
Describe a coverage issue that could arise with these two treaties. Explain how the ceding company and reinsurer can structure the treaties to avoid this issue.
Answer this question and see the worked solution
Concepts tested
- Surplus Share
- Quota Share
- Reinsurance Pricing
- Treaty Reinsurance
- Losses-Occurring-During and Risks-Attaching