State major benefits of international trade to the economy.
(i) List the adjustments that need to be made to a risk premium in order to calculate an office premium. [4] A general insurance company underwrites a household property insurance account that has an outwards quota share reinsurance contract. The account is expected to run at a loss ratio of 60% gross of reinsurance and 55% net of reinsurance. These loss ratios are calculated after the deduction of all commissions. (ii) Suggest why the expected net loss ratio is less than the expected gross loss ratio. [1] The quota share reinsurance has an event limit that allows the insurer to recover no more than a fixed amount per event. The reinsurer is proposing to increase this limit. (iii) Discuss how this might affect the expected net loss ratio. [5] The company also writes product liability insurance. A colleague suggests that the gross premium should be set for the household property account to achieve a higher target loss ratio than the product liability account. (iv) Discuss this statement.A general insurance company is pricing an employers' liability contract for a fishing business involving a large fleet of fishing vessels in the country Eeland. In this country, claims are frequent but their amounts are fixed. The contract will be denominated in the local currency, the Eero (E). The company is calculating historical exposure for previous policy years using the payroll given in the following table. The 201 1 figure is estimated. Annualised Fiscal Year Fiscal Period Payroll (Em) 2007 1 May 2007-30 April 2008 55.0 2008 1 May 2008-30 April 2009 70.0 2009 I May 2009-31 Dec 2009 71.0 2010 I Jan 2010-31 Dec 2010 75.0 201 1 (est. ) I Jan 2011-31 Dec 201 1 80.0 (i) Project a payroll figure for the 2012 fiscal year, explaining your reasoning. [1 ] The 2011 policy year runs from 1 July 201 1 to 30 June 2012. All previous policy years ran from 1 July to 30 June. (ii) Estimate the exposure for each of the five policy years 2007-2011 so that it can be used for rating the 2011 policy. Use an assumed average rate of earnings inflation of 5% and state any further assumptions that you make. [7]The following table contains historical aggregate claims under the policy, trended to current levels and projected to ultimate. Trended Ultimate Claims Policy Year (Em) 2007 2.30 2008 3.75 2009 3.55 2010 2.80 The underwriters think that the high claims in policy years 2008 and 2009 are due to the economic climate and they estimate the effect of this to be a 30% increase in total claim amounts in these years. They do not believe that there should be an increase in any other year, including 201 1. (iii) Estimate the expected losses for the 2011 policy year by removing the effects of the economic climate, stating any assumptions that you make. [4] (iv) Discuss the issues involved in selecting the policy years to use as a basis for rating the 2011 policy. [3] The underwriters suggest building a model to rate individual fishing vessels. (v) Suggest rating factors that may be used in this model. [3]
