2018-Spring Q16 - IRIS Ratio 1
In the solution provided by CAS it says that "if IRIS 4 found to be usual" IRIS Ratio 1 = GWP/(PHS - Surplus Aid)
I thought you only subtract surplus aid if IRIS ratio 4 is found to be UNUSUAL...
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In the solution provided by CAS it says that "if IRIS 4 found to be usual" IRIS Ratio 1 = GWP/(PHS - Surplus Aid)
I thought you only subtract surplus aid if IRIS ratio 4 is found to be UNUSUAL...
Comments
These are typos. Sample 1 should read "unusual."
I am still a bit confused on how to know you have gross and net of reinsurance losses when given "direct" and "assumed". I originally was under the impression that "direct" = net, and "direct & assumed" = gross, while "assumed" = amounts ceded to the reinsurer.
Then I came across a problem where "assumed" referred to portions assumed by parties of a pooling arrangement. Are these terms unique to pools?
And more specifically here, why is the "direct written premium" + "reinsurance premiums assumed (affiliates & non)" = gross? which portion contains the amount ceded to reinsurance: the assumed premium portion, or direct written portion?
Direct: between insurer and insured
Ceded: from insurer to reinsurer, reported by insurer
Assumed: from insurer to reinsurer, reported by reinsurer
Gross: Direct + Assumed
Net: Gross - Ceded
A Reinsurer has Assumed, not Direct. If it retrocedes, it has Ceded.
An Insurer may have Direct and Assumed. But its Assumed is where it plays a Reinsurer role, or the result of Pooling.
So on Fall 2016 #26, we are only given that there is a 50% quota share with the reinsurer, and we are only given "Direct paid losses" and "Direct case and IBNR losses".
If Direct + Assumed = Gross, and we are only given direct, why does the solution indicate that the given losses are gross and need to be split 50/50 according to the quota share? Why wouldn't we assume the given losses are 50% of gross, and the reinsurer assumes the same amount given?
First, here is my previous schematic, refined:
Direct: between insurer and insured
Ceded: between insurer and reinsurer, reported by insurer
Assumed: between insurer and reinsurer, reported by reinsurer
Gross: Direct + Assumed
Net: Gross - Ceded
This is because premium and loss are paid in opposite directions.
As to your question:
The given data comes from the insurer's reporting. The absence of Assumed means only that the insurer is not also a reinsurer.
The absence of Assumed means Gross = Direct. As such, it should be split 50-50.
You are getting confused by thinking that the term Assumed is related only to the reinsurer, whereas both the insurer and the reinsurer here can have Assumed. In this case the insurer does not have Assumed.
Once the insurer's gross is split 50-50, the 50 going to the reinsurer is reported as Ceded by the insurer. The same is reported as Assumed by the reinsurer.
That makes so much sense thank you!!
Sure, good luck.