CAS Exam 8 Fall 2015, Question 20
Study guide: Exam 9
An actuary is using the following exposure curve to rate a non-proportional reinsurance treaty:
G(x) = \frac{(1 - b^x)}{(1 - b)}
The actuary is also given the following information:
| Item | Value |
|---|---|
| Maximum Possible Loss | $5,000,000 |
| Insured Value | $5,000,000 |
| Gross Premium | $6,000 |
| Expected Loss Ratio | 60% |
| Retention of non-proportional reinsurance treaty | $150,000 |
| Expected Ceded Risk Premium | $2,705 |
Part a (0.5 points)
Briefly describe a method to allocate gross premium for the non-proportional reinsurance treaty between the ceding company and the reinsurer.
Part b (0.5 points)
Given the probability of a total loss is 0.03, calculate the parameter b in the formula above.
Part c (1.5 points)
Given the answer in part b. above, calculate the limit of the non-proportional reinsurance treaty.
Answer this question and see the worked solution