CAS Exam 8 Fall 2018, Question 15
Study guide: Exam 9
A reinsurer has priced a quota share treaty to achieve an expected combined ratio of 90%. Expenses for the treaty are as follows:
| Ceding Commission | 20% |
|---|---|
| Brokerage Fees | 5% |
| Administrative Expenses | 1% |
| Unallocated Expenses | 1% |
The following table represents the expected loss ratio distribution for the primary insurer under the treaty:
| Range of Loss Ratios | Average Ratio in Range | Probability of being in Range |
|---|---|---|
| 0-40% | 37.3% | 0.03 |
| 40-60% | 53.2% | 0.21 |
| 60-80% | 66.1% | 0.55 |
| 80% or above | 91.1% | 0.21 |
The treaty includes a loss corridor from 60% to 80% loss ratio.
Calculate the percent of loss reassumed by the primary insurer in the loss corridor.
Part a (1.75 points)
Answer this question and see the worked solution