ERD Example - Revision history

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45.72.235.17: Created page with "Some simple examples for the ERD (Expected Reinsurer Deficit) test for risk transfer :{| class="wikitable" |- ! frequency
of loss !! amount
of reinsured loss !! re..."

2018-12-15T17:01:24Z

Created page with "Some simple examples for the ERD (Expected Reinsurer Deficit) test for risk transfer :{| class="wikitable" |- ! frequency of loss !! amount of reinsured loss !! re..."

New page

Some simple examples for the ERD (Expected Reinsurer Deficit) test for risk transfer

:{| class="wikitable"
|-
! frequency of loss !! amount of reinsured loss !! reinsurance premium !! severity of reinsurer loss '''1''' !! ERD !! risk transfer
|- style="text-align: center;"
| 10% || 3m || 1m || 2m || style="text-align: left;" | ERD = 10% x 2m/1m = 20% '''> 1%''' || yes
|- style="text-align: center;"
| 10% || 2m || 1m || 1m || style="text-align: left;" | ERD = 10% x 1m/1m = 10% '''> 1%''' || yes
|- style="text-align: center;"
| 10% || 1m || 1m || 0m || style="text-align: left;" | ERD = 10% x 0m/1m =  0% '''< 1%''' || no
|- style="text-align: center;"
| 25% || 200 || 100 || 100 || style="text-align: left;" | ERD = 25% x 100/100 = 25% '''> 1%''' || yes
|}

'''1''' This severity amount is ''net of reinsurance premium''. For example, if the ceded loss amount were $100 and the reinsurance premium were $20, the ''severity net of premium'' would be $80, and it's this $80 value that would be used in the ERD forumla.

'''Note''': In general you would calculate the ERD from a frequency distribution. The examples in the above table were simplified: There is probability ''p'' of a specified loss and probability ''(1-p)'' of no loss.

← Older revision		Revision as of 17:16, 15 December 2018
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	<span style="color: red;">'''<sup>1</sup>'''</span> The NPV is ''net of reinsurance premium''. For example, if the ceded loss amount were $100 and the reinsurance premium were $20, the ''NPV(reinsurer loss) net of premium'' would be $80, and it's this $80 value that would be used in the ERD forumla.		<span style="color: red;">'''<sup>1</sup>'''</span> The NPV is ''net of reinsurance premium''. For example, if the ceded loss amount were $100 and the reinsurance premium were $20, the ''NPV(reinsurer loss) net of premium'' would be $80, and it's this $80 value that would be used in the ERD forumla.

−	'''Note''': In general you would calculate the ERD from a <u>frequency distribution</u>. The examples in the above table were simplified~~: There~~ is probability ''p'' of a specified loss and probability ''(1-p)'' of no loss.	+	'''Note''': In general you would calculate the ERD from a <u>frequency distribution</u>. The examples in the above table were simplified where there is probability ''p'' of a specified loss and probability ''(1-p)'' of no loss.

@@ Line 21: / Line 21: @@
 |}
-<span style="color: red;">'''<sup>1</sup>'''</span> This severity amount is ''net of reinsurance premium''. For example, if the ceded loss amount were $100 and the reinsurance premium were $20, the ''severity net of premium'' would be $80, and it's this $80 value that would be used in the ERD forumla.
+<span style="color: red;">'''<sup>1</sup>'''</span> The NPV is ''net of reinsurance premium''. For example, if the ceded loss amount were $100 and the reinsurance premium were $20, the ''NPV(reinsurer loss) net of premium'' would be $80, and it's this $80 value that would be used in the ERD forumla.
 '''Note''': In general you would calculate the ERD from a <u>frequency distribution</u>. The examples in the above table were simplified: There is probability ''p'' of a specified loss and probability ''(1-p)'' of no loss.

@@ Line 10: / Line 10: @@
 :{| class="wikitable"
 |-
-! prob(of NPV reinsurer loss) !! amount <br> of reinsured loss !! reinsurance <br> premium !! NPV(reinsurer loss) <span style="color: red;">'''<sup>1</sup>'''</span> !! ERD !! risk transfer
+! prob(of NPV reinsurer loss) !! NPV <br> of reinsured loss !! reinsurance <br> premium !! NPV(reinsurer loss) <span style="color: red;">'''<sup>1</sup>'''</span> !! ERD !! risk transfer
 |- style="text-align: center;"
-| 10% || 3m || 1m || 2m || style="text-align: left;" | ERD = 10% x 2m/1m = 20% <span style="color: green;">'''> 1%'''</span> || yes
+| 10% || 3m || 1m || 2m  = 3m - 1m|| style="text-align: left;" | ERD = 10% x 2m/1m = 20% <span style="color: green;">'''> 1%'''</span> || yes
 |- style="text-align: center;"
-| 10% || 2m || 1m || 1m || style="text-align: left;" | ERD = 10% x 1m/1m = 10% <span style="color: green;">'''> 1%'''</span> || yes
+| 10% || 2m || 1m || 1m = 2m - 1m || style="text-align: left;" | ERD = 10% x 1m/1m = 10% <span style="color: green;">'''> 1%'''</span> || yes
 |- style="text-align: center;"
-| 10% || 1m || 1m || 0m || style="text-align: left;" | ERD = 10% x 0m/1m = &nbsp;0% <span style="color: red;">'''< 1%'''</span> || no
+| 10% || 1m || 1m || 0m = 1m - 1m || style="text-align: left;" | ERD = 10% x 0m/1m = &nbsp;0% <span style="color: red;">'''< 1%'''</span> || no
 |- style="text-align: center;"
-| 25% || 200 || 100 || 100 || style="text-align: left;" | ERD = 25% x 100/100 = 25% <span style="color: green;">'''> 1%'''</span> || yes
+| 25% || 150 || 100 || 50 = 150 - 100 || style="text-align: left;" | ERD = 25% x 50/100 = 12.5% <span style="color: green;">'''> 1%'''</span> || yes
 |}

← Older revision		Revision as of 17:11, 15 December 2018
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		+	Formula:
		+
		+	:{\| class="wikitable"
		+	\|-
		+	\| ERD <span style="color: red;">'''='''</span> prob(of NPV reinsurer loss) <span style="color: red;">'''x'''</span> NPV(reinsurer loss) <span style="color: red;">'''/'''</span> (reinsurance premium)
		+	\|}
		+
	Some simple examples for the ERD (Expected Reinsurer Deficit) test for risk transfer:		Some simple examples for the ERD (Expected Reinsurer Deficit) test for risk transfer:
−
−	~~: ERD <span style="color: red;">'''='''</span> prob(of NPV reinsurer loss) <span style="color: red;">'''x'''</span> NPV(reinsurer loss) <span style="color: red;">'''/'''</span> (reinsurance premium)~~

	:{\| class="wikitable"		:{\| class="wikitable"

← Older revision		Revision as of 17:10, 15 December 2018
Line 1:		Line 1:
−	Some simple examples for the ERD (Expected Reinsurer Deficit) test for risk transfer: ERD <span style="color: red;">'''='''</span> prob(of NPV reinsurer loss) <span style="color: red;">'''x'''</span> NPV(reinsurer loss) <span style="color: red;">'''/'''</span> (reinsurance premium)	+	Some simple examples for the ERD (Expected Reinsurer Deficit) test for risk transfer:
		+
		+	: ERD <span style="color: red;">'''='''</span> prob(of NPV reinsurer loss) <span style="color: red;">'''x'''</span> NPV(reinsurer loss) <span style="color: red;">'''/'''</span> (reinsurance premium)

	:{\| class="wikitable"		:{\| class="wikitable"

ERD Example - Revision history

45.72.235.17 at 17:16, 15 December 2018

45.72.235.17 at 17:16, 15 December 2018

45.72.235.17 at 17:14, 15 December 2018

45.72.235.17 at 17:11, 15 December 2018

45.72.235.17 at 17:10, 15 December 2018

45.72.235.17 at 17:10, 15 December 2018

45.72.235.17 at 17:09, 15 December 2018

45.72.235.17: Created page with "Some simple examples for the ERD (Expected Reinsurer Deficit) test for risk transfer :{| class="wikitable" |- ! frequency of loss !! amount of reinsured loss !! re..."

45.72.235.17: Created page with "Some simple examples for the ERD (Expected Reinsurer Deficit) test for risk transfer :{| class="wikitable" |- ! frequency
of loss !! amount
of reinsured loss !! re..."