Price Formulas (2017 Spring #26b)
I was playing around with the formulas for calculating the price and derived this:
Price = %ult increase * Primary Ceded Paid + (1 + %ult increase) * Reinsurer Gross Reserve
Maybe it's too specific to this problem's setup to be that useful but I am curious if you see any reason this may not get full credit if I jumped straight to this on the exam.
Example from 2017 spring 26b:
Primary Ceded Paid w/o commutation = (1,650,000-1,070,000) * .3 = 174,000
Reinsurer Gross Reserve w/o commutation = 1,070,000 * .3 * 1.15 = 369,150
Price = .12 * 174,000 + 1.12 * 369,150 = 434,328
Comments
Reinsurer Gross Reserve w/o commutation = 1,070,000 X .7 X 1.15
" 15% more than the primary's reserve "
It works. But this is specific to this problem: unlikely that you'll see them lined up like this elsewhere.
This is from the solution, am I missing something? using .7 doesn't give the right answer.