Fall 2016 Q21
In Part B of this question the examiners report gives the following answer:
1) Reduce surplus by after tax net PML
2) Increase unpaid claims by 40% of net before tax PML
3) Increase reinsurance recoverable by 40% of ceded before tax PML
4) Reduce adjusted surplus (1) from after tax net PML of second event
5) If the first event was a EQ, the surplus is reduced by 1-in-100 year occurrence PML in (4)
If the first even was a storm surge or hurricane, the same amount is reduced in steps (1) and
(4)
I understand up until step 3 but for step 4 based on the Wiki I would have expected it to relate to the reinsurance structure. If the reinsurance arrangement is expected to shift after a first cat event you would want to update the PML used in the catastrophe risk component of the standard BCAR score to reflect the new BCAR score. Can you explain where step 4 and 5 from the examiners report are coming from?
Comments
Its from an older version of the BCAR paper which has since been updated. The wiki is the most updated version that you should remember for the exam