FARM Participation Ratio
Hi,
I cannot recall whether it is from the Wiki or Past Exam: It says that "The PR for FARM varies by class of business (there are 5 classes) and by accident year". My question is that isn't the FARM and RSP are total in 5 classes together? Does that mean somehow the PR for FARM need to be calculated from some parameter from RSP and UAF as well?
Thanks and Cheers,
Wilson
Comments
According to the examiner's report solution for 2015.Fall Q7:
the formula for the Participation Ratio is:
This is explained further in the wiki here:
The sentence you referenced in your post just means that each of those 5 categories have their own participation ratio. In other words, the participation ratio is not necessarily calculated for the company as a whole.
oh, then I know what it means. Cause I thought the PR formula is only valid for RSP and will be different for FARM.
So you are basically saying that the Formula for PR works for All Risk Sharing Mechanism (i.e. FARM, RSP and UAF). So by class, there should be 5 Different Class of PR for 1 company. Thanks Graham!
Hi Graham,
Above you stated that:
"the formula for the Participation Ratio is:
PR = Co.EE(not ceded) / Prov.EE(not ceded)"
This is true for RSP, but would this also apply to FARM? After all, the member companies don't cede risks to FARM (as they are written by FA via a servicing carrier), so I'm not sure what non-ceded EE would represent here.
The material doesn't explicitly say how the losses are allocated for FARM. However, looking at bullet point 1 and 2 on page 4 it would seem like it is being allocated based on an insurer's Auto book excluding RSP risks
why is participation ratio listed as one of the differences between FARM and RSP, can you please explain how is it calculated for FARM please? (I'm referring to battle card 17)
The answer is mentioned in my previous post ^