(Papers) ACET Paper May 2010 "SA3 – General Insurance"
All Izz Well insurance Company, is a medium sized general insurance company
operating in India for the last 8 years. All Izz Well focuses on retail
insurance business and the portfolio consists of Motor, Health and Personal
The company is planning to enter commercial insurance segment and start
insuring medium and large commercial risks mainly for Standard Fire Perils as
documented in erstwhile Fire Tariff.
(i) You are the Appointed Actuary of All Izz Well Insurance Company. The
Board has asked you to prepare a detailed note on all relevant considerations,
before the Board approves this proposal. You are expected to cover in your note,
among other aspects, regulatory requirements post detariff to launch new
products and also the role of the Board and Appointed Actuary in this regard.
(ii) The Board is aware of detariff for this class of business and is also
interested to know your views ona.
How the introduction of detariff has affected the business for Fire insurance
b. Important features relating to pricing of large and medium commercial
risks in the changed market scenario.
Outline your views.
(iii) Formulate your recommendations on whether to start this business or not
based on your answers in ii) a) and b) and also your outlook for the Indian
market for Fire insurance in the next few years.
(iv) The Marketing Director, aware of business plans to venture into new
territories, has proposed to launch a Directors and Officers Liability policy.
Outline the coverage under this type of policy, the rating and reinsurance
arrangements to be followed for the same and your views on the synergy of this
product with existing product line of All Izz Well Insurance Company.
A medium sized general insurance company in India is in its 10th year of
operation. The company writes four lines of businesses (LOBs) – Motor, Fire,
Health and Liability. Its total written premium for the year 2009 was Rs 1,000
Crores and all the LOBs were 20-30% of the total book of business of the
Discuss the methods, and their suitability, for IBNR reserving that company
should use for each of the LOBs in its
a) 2nd year of operation
b) 6th year of operation and
c) 9th year of operation
(i) Define a surplus reinsurance treaty.
(ii) A company has a surplus treaty with maximum retention Rs 1,000,000 and 10
lines of reinsurance cover above that. Calculate the ceded proportion for two
risks with the following PML:
a. Rs 2,000,000
b. Rs 10,000,000
(iii) Assume that on the net retention after the surplus treaty in ii) above,
the company has an excess of loss reinsurance with layer Rs 10,000,000 xs Rs
5,000,000. For a risk with PML Rs 20,000,000, there is a claim of amount Rs
15,000,000. Calculate the amounts to be paid by the insurer, the surplus
reinsurer and the excess of loss reinsurer.
(iv) A company has a reinsurance structure similar to iii) above from the
outset but with some changes in surplus retention, number of lines covered or
excess of loss attachment points and limits from one year to the next. You have
access to both gross and net of reinsurance data as well as the details of the
reinsurance treaties for the past years.
Discuss the possible issues to consider while calculating the net (of
reinsurance) IBNR reserves using
a. The gross (of reinsurance) triangle
b. The net triangle.