CAS Exam 8 Fall 2019, Question 19
Study guide: Exam 9
An insurance company is deciding between three reinsurance treaty options from the same reinsurance company based on the following output from a catastrophe model:
| Insurance Company | Gross (No Reinsurance) | Option 1 | Option 2 | Option 3 |
|---|---|---|---|---|
| Retained AAL | $500 million | $450 million | $486 million | $488 million |
| Coefficient of Variation of Retained Loss | 25% | 25% | 24% | 22% |
| Coefficient of Variation of Ceded Loss | n/a | 25% | 76% | 169% |
Part a (0.5 points)
Calculate the probability that the insurance company retains more than $750 million of loss on a gross basis.
Part b (0.75 points)
One of the options represents a Quota Share reinsurance treaty. Justify which of the three options it is, and state the Quota Share percentage.
Part c (0.5 points)
Describe a reason why the reinsurance premium for Option 3 may be higher compared to Option 1.
Answer this question and see the worked solution