Clark

Question 1

Intent of the carryforward provision

Answer 1

Smooth result over time

Question 2

3 Categories of Casualty per-occurrence excess treaties

Answer 2

1. Working layer
   - low attachment point
   - Expected to be pierced multiple times annually
   - The working layer is often retained by the cedant
2. Exposed Excess
   - Excess layer with attachment point below some policy limits
   - These losses are less frequent than a working layer as there will be some years where no losses pierce the attachment point
3. Clash cover
   - High attachment point above any single policy limit
   - Clash covers are penetrated due to losses on multiple policies from a single occurrence OR from extra-contractual obligations (such as bad faith claims)

Question 3

Cautions about using industry information from the Reinsurance Association of America (RAA) to obtain excess development factors

Answer 3

1. The reporting lag from the occurrence of an event is the establishment of a reinsurer’s case reserve may vary by company
2. The mix of attachment points and limits is not cleanly broken out in the RAA studies. This is problematic since development varies by attachment point
3. The RAA data might contain Asbestos and Environmental claims which could distort development patterns.
4. The RAA workers’ compensation data might not include a consistent handling of tabular discounts on large claims.

Question 4

3 disadvantages of using empirical approach as aggregate distribution model

Answer 4

1. It does not account for all possible outcomes and relies on the historical average. The actual result may differ greatly from the historical average.
2. it may not properly reflect changes in business volume or mix of business.
3. If losses were developed with the BF or Cape Cod method, historical losses may under-represent the true future volatility.

Question 5

Advantage of using empirical approach

Answer 5

it’s easy to calculate

Question 6

Advantage of using the single distribution model

Answer 6

it’s relatively simple to use, even when the source data is limited

Question 7

2 Disadvantages of the single distribution model

Answer 7

1. It does not allow for the loss free scenario.
2. There is no easy way to reflect the impact of changing per occurrence limits on the aggregate losses

Question 8

Two advantages of the recursive aggregate loss model

Answer 8

1. It’s simple to work with
2. It provides an accurate handling of low frequency scenarios

Question 9

Two disadvantages of the recursive aggregate loss model

Answer 9

1. The calculation is more intensive for higher frequencies.
2. Only a single severity distribution can be used

Question 10

A contract can only be considered reinsurance if two conditions are met

Answer 10

1. The reinsurer assumes significant insurance risk under the reinsured portions of the underlying insurance contracts
2. It’s reasonably possible that the reinsurer may realize a significant loss from the transaction

Question 11

Issues with the standard pricing formula

Answer 11

It fails to consider the following:
1. The timing of cash flows
2. Risk elements (including a risk load)
3. Any adjustable features such as a swing plan premium or sliding scale commission
4. Profit load provisions

Question 12

Two key assumptions for exposure rating

Answer 12

1. The same exposure curve applies regardless of the size of the insured value
2. All locations are the midpoint of the insured value curve