Elliott 6, 1999, part 10, question 43

[Scheffe]

CAS Insurance Company desires to limit its maximum net loss to $200,000. The company purchases the following surplus share treaties:
i) First surplus share treaty with capacity for four lines.
ii) Second surplus share treaty with capacity for two lines.
Based on Elliott et al., in Principals of Reinsurance, answer the following:
a. Assume CAS writes a $1,400,000 risk that experiences a $900,000 loss. How would this loss be spread among the CAS Insurance Company, the first surplus share treaty, and the second surplus share treaty?

The answer given by CSM is
4/7 x 900,000 = 514,286 for first surplus share treaty
2/7 x 900,000 = 257,143 for second surplus share treaty
1/7 x 900,000 = 128,571 for CAS Insurance company

My answer is
900,000 x (200,000 x 4)/1,400,000 = 514286 for 1st treaty
(900,000 - 514286) x (200,000 x 2) /1,400,000 = 110204 for 2nd treaty
900,000 - 514286 - 110204 = 275510 for CAS Insurance Company

Am I right?Or CSM is right?

And does anyone have the solution to part 10, 1999?
(99PT10SS.PDF and 10-s99.htm)

[Colymbosathon ecplecticos]

CAS Insurance Company desires to limit its maximum net loss to $200,000. The company purchases the following surplus share treaties:
i) First surplus share treaty with capacity for four lines.
ii) Second surplus share treaty with capacity for two lines.
Based on Elliott et al., in Principals of Reinsurance, answer the following:
a. Assume CAS writes a $1,400,000 risk that experiences a $900,000 loss. How would this loss be spread among the CAS Insurance Company, the first surplus share treaty, and the second surplus share treaty?

The answer given by CSM is
4/7 x 900,000 = 514,286 for first surplus share treaty
2/7 x 900,000 = 257,143 for second surplus share treaty
1/7 x 900,000 = 128,571 for CAS Insurance company

My answer is
900,000 x (200,000 x 4)/1,400,000 = 514286 for 1st treaty
(900,000 - 514286) x (200,000 x 2) /1,400,000 = 110204 for 2nd treaty
900,000 - 514286 - 110204 = 275510 for CAS Insurance Company

Am I right?Or CSM is right?

And does anyone have the solution to part 10, 1999?
(99PT10SS.PDF and 10-s99.htm)

Surplus share is pro-rata reinsurance. Only thing you need to do is figure out the ratio.

You retain 1 line (200)
1st takes 4 lines (800)
2nd takes 2 lines (400)

a 1,400 risk uses your full capacity ===> each line = 1/7.

[SouthOfSanity]

CAS Insurance Company desires to limit its maximum net loss to $200,000. The company purchases the following surplus share treaties:
i) First surplus share treaty with capacity for four lines.
ii) Second surplus share treaty with capacity for two lines.
Based on Elliott et al., in Principals of Reinsurance, answer the following:
a. Assume CAS writes a $1,400,000 risk that experiences a $900,000 loss. How would this loss be spread among the CAS Insurance Company, the first surplus share treaty, and the second surplus share treaty?

The answer given by CSM is
4/7 x 900,000 = 514,286 for first surplus share treaty
2/7 x 900,000 = 257,143 for second surplus share treaty
1/7 x 900,000 = 128,571 for CAS Insurance company

My answer is
900,000 x (200,000 x 4)/1,400,000 = 514286 for 1st treaty
(900,000 - 514286) x (200,000 x 2) /1,400,000 = 110204 for 2nd treaty
900,000 - 514286 - 110204 = 275510 for CAS Insurance Company

Am I right?Or CSM is right?

And does anyone have the solution to part 10, 1999?
(99PT10SS.PDF and 10-s99.htm)

CSM is right.