F2019 #16
In this question why is cash and bonds also reduced by reinstatement premium and treaty cost.
Gross earned premium is already reduced to account for this, why does cash and bonds need to be reduced as well?
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In this question why is cash and bonds also reduced by reinstatement premium and treaty cost.
Gross earned premium is already reduced to account for this, why does cash and bonds need to be reduced as well?
Comments
Not only do reinsurance costs reduce NEP, they also reduce the assets available to invest. Presumably the NEP is invested in cash and/or bonds and earns income so if the NEP is reduced by these reinsurance costs, the amount available for investment is also reduced. (So when you apply the investment return of 5%, you have to apply it to the reduced cash/bond amount.)
Sounds good, thanks
Can you please elaborate as to why the Net Losses are reduced by this amount?
Net losses = 525,000 – min(450,000, 200,000 – 450,000(.2))
Hi,
In the second bullet point it is stated: The treaty pays for losses from a single event in excess of 20% up to a maximum of 100% of Gross Earned premium.
Net Losses = 525,000(Gross Incurred Losses with Catastrophes) - min[450,000 (Minimum because contract will not pay more than gross earned premium), 200,000 (Cat losses 525,000 - 325,000 which is the difference between the with catastrophe and without catastrophe event) - 450,000*0.2(Contract will only pay the losses above 20% of Gross Earned Premium)]