2017F-17b

AnLaPe

Hi,

For this problem, I was having a having a hard time understanding why the net UEP was equal to the gross UEP as of the end of year until I realised that they assumed that the reinsurance treaty is loss occurring and thus the reinsurance premium is fully earned at treaty expiry.

So my questions are:

• Am I correct in my assessment that this solution is only valid if the treaty is loss occurring?
• Does the fact that the treaty expires on dec-31, or anything else in the problem statement imply that it is loss occurring?
• If I assume that the treaty is risk attaching, would it be accurate to calculate the net EP as (only in this situation since the treaty is effective at the same time as company creation)
  • NEP = NWP * (GEP / GWP)

Looking at the Blanchard & Klann examples, they explicitly state that ceded UEP would be 0 at the end of the year for a treaty effective jan-1 without defining what type of treaty it is either, so I guess if a similar question comes up, it would be safest to just assume it is loss occurring..?

Staff-T1

Hi,

• I think so, yes because you'd still have maybe around 25% of premium to earn as a risk attaching policy
• I think it is safe to assume it is loss occurring in an exam unless it is explicitly stated As you mentioned later in the question, the source examples do assume a loss occurring treaty. With regards to the verbiage around expires, this could imply that it is loss occurring due to the fact that a risk attaching policy would only expire in 2018 here But it's the CAS so it's hard to tell what they are thinking in the background. They are usually very ambiguous but tend to give candidates a benefit of the doubt during grading
• Well I think so but you would have to state that you assume a same earning pattern for the net and gross earned premium (should normally be the case tbh)