2019 Spring Q18 - Part A

thesuperactuarythesuperactuary
in OSFI.MCT

Can someone help me explain the reinsurance coverage formula in the examiner's report?

Reinsurance coverage =025,000 + 0.975,000 + 1.0100,000 + 0.550,000 = 192,500

I don't quite understand this calculation.

Thanks!

Comments

  • Staff-T1Staff-T1

    In the layer:
    0-25K: There is no reinsurance
    25K-100K: We have a 90% cession to reinsurers
    100K-200K: We completely ceded all losses
    200K-250K: We ceded 50% of losses

    Sum that up and you get your reinsurance coverage

  • thesuperactuarythesuperactuary

    Oh so they take the mid point of each range to calculate the expected reinsurance coverage?

  • Staff-T1Staff-T1

    No, they take the full amount in each range multiplied by the cession % in each range

  • thesuperactuarythesuperactuary

    I see. Thank you! I have another follow up question. In another exam question, for example, Spring 2017 Q17, the reinsurance part is calculated as follow:
    Reinsurance coverage
    = 0% x 25,000 + 50% x 25,000 + 90% x 100,000 + 100% x 100,000 + 0% x 13,536
    = 202,500

    I understand the Italic part is the ceded ratio * full range; then where does this 0% * 13,536 comes from? Thank you!

  • Staff-T1Staff-T1

    Are you sure you are referring to the eight questions? Spring 2017 Q17 is a risk transfer question?

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