CAS Exam 9 Spring 2016, Question 28
Study guide: Exam 9
Given the following information:
- Assume a reinsurance contract covering two years with a single loss payment at the end of the two years.
- Assume no expenses.
| Item | Value |
|---|---|
| Mean of loss distribution | 200,000 |
| Standard deviation of loss distribution | 300,000 |
| Dollar safety level associated with loss distribution | 2,000,000 |
| Annual expected yield rate of target investment | 7% |
| Standard deviation of investment yield over one year | 20% |
| Standard deviation of investment yield over two years | 30% |
| Annual risk free rate | 3% |
Part a (1.5 points)
Use the swap technique to calculate the time-0 asset that needs to be allocated by the reinsurer for the reinsurance contract.
Part b (1 point)
Calculate the reinsurance premium.
No current syllabus covers this question; it is kept for the record.
Answer this question and see the worked solution