Example 3 - Ceded Written Premium

YouAreGivenYouAreGiven
in BK.Reins

Hi Graham,
I am not sure why the Ceded Written Premium increases from 50 (in a normal loss year) to 70 (in a high loss year)?
Could the additional 20 be a mistake? (like reinstatement premium that should not be there in an aggregate excess?)
Or is there another reason that could justify this increase?

Thank you,

Comments

  • grahamgraham

    You're correct, it's a mistake. If the annual reinsurance contract was issued on Jan 1 then the ceded earned premium should be the same as the ceded written premium for the year.

    When I first read this paper, I also noticed other mistakes in the Excel exhibits that were provided. That's why I focused more on the concepts in the wiki article. (It's also not a high-ranked article.) Plus, this paper by Blanchard and Klann was completely updated in January 2020 (by Cedar & Thompson) so I'm not sure why this old version from 2012 (with mistakes) is still on the syllabus.

    If you're wondering about other errors:

    • For Scenario 1, the ceded loss reserves with reinsurance should be 225 (not 300)
    • For Scenario 2, the expenses with reinsurance, with no cat event, should be 190 (not 200)
    • For Scenario 2, the expenses with reinsurance, with cat event, should be 186 (not 200)

    And if these numbers are used to calculate other quantities in the exhibits then those numbers are potentially incorrect as well.

    My advice is not to spend too long figuring all this out unless you've got lots of extra time. It's easy to get bogged down in these details at the expense of studying other topics that are much more likely to appear on the exam.

    Now, you should look at the old exam problems where you have to calculate the financial impact of reinsurance but if you can do those, you'll be able to take a good stab at whatever they might throw at you on the exam.

  • YouAreGivenYouAreGiven

    Great - Thanks!

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