Insurance Question

Question 7. (25 marks) XYZ reinsurance company writes an excess of loss reinsurance for ABC insurance company. This treaty provides a cover of $400,000 over $200,000. XYZ reinsurance company tries to determine reinsurance premium using the burning cost method. The information regarding the past claims to the cover is provided in the following table. Year 2014 2015 2016 2017 2018 Claims to the cover 320,000 380,000 590,000 190,000 400,000 Premiums 8,700,000 9,000,000 12,000,000 12,500,000 13,000,000 7.1 Calculate the commercial rate for XYZ reinsurance company. Assume that XYZ insurance company decides to calculate the commercial rate with a loading factor of 100/80. Show all your work. (10 marks) 7.2 In 2019, XYZ reinsurance company specifies that the cover is provided with one reinstatement. The reinstate premium is charged on a pro-rata capita basis, i.e., payable at 30% of the reinsurance premium charged for the cover. Assume that there are two original claims (400,000 and 300,000) that are submitted to the cover in 2019. At the beginning of 2019, the original premium to the cover is estimated at 10,000,000. Calculate the total amount of reinsurance premium for this treaty in 2019. (15 marks) Question 7. (25 marks) XYZ reinsurance company writes an excess of loss reinsurance for ABC insurance company. This treaty provides a cover of $400,000 over $200,000. XYZ reinsurance company tries to determine reinsurance premium using the burning cost method. The information regarding the past claims to the cover is provided in the following table. Year 2014 2015 2016 2017 2018 Claims to the cover 320,000 380,000 590,000 190,000 400,000 Premiums 8,700,000 9,000,000 12,000,000 12,500,000 13,000,000 7.1 Calculate the commercial rate for XYZ reinsurance company. Assume that XYZ insurance company decides to calculate the commercial rate with a loading factor of 100/80. Show all your work. (10 marks) 7.2 In 2019, XYZ reinsurance company specifies that the cover is provided with one reinstatement. The reinstate premium is charged on a pro-rata capita basis, i.e., payable at 30% of the reinsurance premium charged for the cover. Assume that there are two original claims (400,000 and 300,000) that are submitted to the cover in 2019. At the beginning of 2019, the original premium to the cover is estimated at 10,000,000. Calculate the total amount of reinsurance premium for this treaty in 2019. (15 marks)