Question
The following is an example of a dual trigger insurance contract with a provision that adjusts the retention amount downward based on the performance of
The following is an example of a dual trigger insurance contract with a provision that adjusts the retention amount downward based on the performance of a specified equity index.Please fill in the missing values in the table.
The insurer enters into an insurance contract with the insured (NPTW) to indemnify NPTW for certain insured losses in excess of a defined retention. The intent of the coverage is to protect NPTW from significant or catastrophic property-casualty losses. The coverage would include a retention amount that would be adjusted downward according to a scale tied to the Dow Jones Industrial Average (DJIA). If a catastrophic loss occurs, NPTW would likely have to liquidate some of its investment holdings (bonds or equities) to pay its losses, which exposes NPTW to significant investment risk in a down market. The adjustment feature provides protection against investment risk by allowing NPTW to recover more losses in a declining investment market.
Coverage: Property Losses
Period: 1/1/2018 through 12/31/2018
Retention: $15 million per occurrence, adjusted downward in the same percentage as period-to-date (from 1/1/2018 to measurement date) decreases in the DJIA, not to exceed 50%.No upward adjustments.
Limit: $15 million per occurrence, $15 million per annum
Premium: $1.4 million per annum
Both of the following scenarios assume that the DJIA on 1/1/2018 was 25,000.Please fill in the retention amounts and recovery under the insurance contract for each scenario.
Scenario 1 Scenario 2
7/1/18 9/1/18 7/1/18 9/1/18
Property-Casualty Losses 20 million 20 million 15 million 15 million
DJIA 26,000 20,000 20,000 15,000
Retention _____ _____ _____ _____
Recovery under contract _____ _____ _____ _____
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started