RSP Loss Ratios - where is Loss Company Ceeded

mandatory_coveragesmandatory_coverages
in Dutil.FA

losses = (prov Losses ceeded * PR) for your share of the RSP
losses = (prov Losses ceeded * PR) + (Company losses not ceeded) for total losses

No where do we use Company losses ceeded

Either A this implies we would never pay the share of the losses we ceed but I thought we're still on the hook for what we put into the pool?

Or B the prov portion includes the company portion but then
prem = (prov prem ceeded*PR) + (Company prem ceeded *PEA) for your share of the RSP
doesnt this double count the premium the company puts in the pool?

Also what is PEA? Why do we have it

Comments

  • mandatory_coveragesmandatory_coverages
    edited April 5

    Ive clued in the PEA is like a reimbursement for the expenses relating to the handling of claims so it's not double counting :smiley:

  • Staff-TSStaff-TS
    edited April 4

    The PR (participation ratio) is PR = Co.EE(not ceded) / Prov.EE(not ceded). This means that when you calculate the PR for every participating insurer in the jurisdiction, sum(all PRs) = 1. Although intuitive, I wanted to make sure this was stated.

    total losses = Co.IL(not ceded) + Prov.IL(ceded) x PR

    • Co.IL(not ceded): This is the company losses not ceeded. These are the losses the insurance company will payout themselves.
    • Prov.IL(ceded) x PR: This is the company's share of the losses from the pool, which include the losses they ceded to the pool in the first place. They are only on the hook for this amount. Note that this breaks down to (Co1.IL(ceded) + Co2.IL(ceded) + ... + CoN.IL(ceded)) x PR.

    In an extreme example, if the company ceded an exposure that had a $12M liability claim, and all other losses submitted by the other participating insurers amounted to $3M, they would only be on the hook for PR x ($12M + $3M) which would likely be less than the $12M claim they would have to deal with had they not submitted to the pool.

    PEA is a reimbursement as you said. It is for the member company's acquisition, operating, and loss adjustment cost.

  • CanAct06CanAct06

    14F # 13 Participation Ratio
    Don't understand what exactly part % is for FA, RSP had calc examples.

  • Staff-TSStaff-TS

    Are you asking about the participation ratio split between FARM and RSP?

    For RSP, the source states:

    • The PR is determined using a proportion of their total voluntary PPA, non-fleet, TPL direct EE that is not ceded to a risk sharing pool for the applicable province.
    • The calculation question in the wiki shows: Co.EE(not ceded) / Prov.EE(not ceded)

    For FARM, the source states:

    • The basis of determination of the participation ratio varies by jurisdiction. According to the Plan of Operation, the FA must determine the profit or loss separately for each accident year, in each jurisdiction.

    As far as I can tell, the previously tested PR calculation questions are for RSP, and there has not been a detailed FARM PR question. Since it is not specifically stated in the source, I don't think the details would be testable.

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