2017 Fall Q25

jj96gotthisjj96gotthis
edited February 2021 in F-14-Recoveries

Hi,

I would like to ask for some clarification regarding the last step of Alice's solution about the net paid.

The examiner's report was not clear about this as well.

The comment stated that candidates are expected to "apply the stop loss reinsurance to obtain an estimate of ultimate loss and paid loss net of ALL reinsurance". Therefore, should the column net paid be "Paid Claims net of EoL" if the AY 2013 paid = 5,102 OR "Paid Claims net of ALL" but with the AY 2013 paid = 5000 instead of 5,102?

Thank you for your explanation!

Comments

  • GrahamGraham
    edited February 2021

    I see what you mean about AY 2013, but it would not change the answer. The formula for the final net unpaid is:

    • net unpaid = MAX[ 0, (Ult Claims net of ALL reinsurance) - (net paid) ]

    So whether you cap the net paid at 5,000 or not, the final unpaid for AY 2013 will still be 0.

    (It does seem strange that they would pay out 5,102 when the stop-loss limit is 5,000, but I think you have to take that as given.)

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