Question 18a

jptardif2jptardif2
in PRACTICE EXAM

Hi Graham,

In part a, why aren't we considering that there are 150 policies impacted by the treaty? Can you expand a bit more on how to apply the ERD rule, because I can't seem to be able to apply it on a consistent basis.

Regards,

Comments

  • grahamgraham

    You know, I just went back and redid that question, and I don't think I stated it very well. Here's how I solved it just now:

    • ERD
    • = F x S / premium
    • = 10% x 15,000 / (1,500,000/1,500)
    • = 10% x 15,000 / 10,000
    • = 15%

    This is greater than 15 so it passes the ERD test and I did use the number of policies in that calculation.

    The difference between this and how I solved it in the practice exam is that I assumed the 15,000 severity was the total severity for all policies, not just for an individual policy. If the the given severity is just for 1 policy, then you have to use the premium for 1 policy.

    Is that what you did?

  • jptardif2jptardif2

    Hi Graham,

    I used the solution giving 15%, but I applied the 90% quota share to get 13.5% because that's what the reinsurer would have as a deficit. Does that make sense?

    Thanks,

  • grahamgraham

    Sorry, I completely messed up that part of the answer. I agree that the 15% should be multiplied by the quota-share % of 90%.

    I've decided now to change a number in the question. The severity is now 1,500 (instead of 15,000) so the ERD test fails, which what I originally wanted so that it contrasts with the "substantially all" rule, which passes.

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