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ERM Exam Old Advanced Finance and Enterprise Risk Management (ERM) Forum

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Old Yesterday, 08:15 AM
Actuary9914 Actuary9914 is offline
Join Date: Sep 2014
Posts: 65

Originally Posted by E View Post
The critical difference is that XL agreements usually focus on aggregate losses, so they are "non-proportionate" to individual risks. Surplus share is technically a form of proportional reinsurance. Even though the proportion varies by risk, it's still defined in terms of specific risks in advance.

XL losses can really only be known after the fact. With surplus share, you know in advance what % of each individual risk is ceded. With XL, the reinsurer's share in dollars isn't really known until after the loss occurs. The cedant's share in dollars (if there is a coinsurance % on excess losses) isn't known in advance either.

That said, you can also define XL on a per risk basis, and you can certainly begin to blur the lines just depending on the specifics of the agreement.
In the Spring 2015 exam, Q1c, is the calculation of the retained claim for surplus reinsurance consistent with the definition of ProRata Surplus in reading 128-17? Based on the reading 128-17, i would think very small claims are not reinsured, whereas in the exam question solution it implies that a percentage of every claim is reinsured, not matter how small.
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