(Papers) ACET Paper May 2010 "ST3 – General Insurance"
Q. 1) i) State the two main types of proportional reinsurance
ii) Explain by means of numerical examples, how the claim
payment is divided between the direct writer and the reinsurer, in the event of
a claim under each of the two types of proportional reinsurance.
Q. 3) A general insurance company writing only motor
insurance business has assets comprising equities, cash and index-linked
government securities. Discuss the appropriateness of the investment portfolio.
Q. 4) A general insurer uses a credibility formula to
estimate the risk premium for a certain class of business.
i) Explain the loadings you would apply to the risk premium
to arrive at the office premium Assume the office premium is determined by
adding 30% to the risk premium to allow for insurer’s expenses and profit
requirements. Two risks are coming up for renewal. For risk P, the total amount
of claims in respect of the past 5 years is 80% of the amount the insurer would
have expected whereas for risk Q it is 20% higher than expected. The insurer
uses a credibility factor of 50% for risk P and 75% for risk Q.
ii) Express the office premium for risk P as a percentage of
the office premium for risk Q
Q. 5) An insurance company accounts for all its business
on a quarterly basis. The amounts of premium written for each quarter of the
calendar year are:
Q1: 100 Crore
Q2: 120 Crore
Q3: 150 Crore
Q4: 120 Crore
In June, the company carried out a review of its expected
claim experience for the year’s business, and concluded that for business
written during the year at the current premium rate, the combined ratio (Loss
ratio + expense ratio) for the year would be 114%. As a result of this review,
the company increased its premium rates by 20%, the increases taking effect on
1st August. During the third quarter, Rs 100 Crore was written on the old
premium rate and the rest was written on the new premium rate.
i) Explain briefly the terms UPR, URR and AURR.
ii) Stating the assumptions you make, calculate the UPR and
estimate the AURR as at close of play at the end of year assuming that the
accounting method used by the company does not use a provision for DAC for
calculation of UPR.
iii) Explain briefly three reasons why a 20% increase in
premium rates may result in a change in combined ratio which is significantly
different from the decrease of 16.67% (=20/120).