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Catastrophe Reinsurance with Reinstatement Provisions: An Overview

This seminar discusses the use of reinstatement provisions in pricing catastrophe reinsurance, with a focus on the Event Loss Table (ELT), limitations based on aggregate losses, and the estimation of expected loss and premium.

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Catastrophe Reinsurance with Reinstatement Provisions: An Overview

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Presentation Transcript

  1. Pricing Catastrophe Reinsurance With ReinstatementProvisions Using a Catastrophe Model CAS Ratemaking Seminar Rick Anderson Chief ActuaryMarch 11, 1999

  2. Introduction • Reinstatement provisions • Event Loss Table (ELT) • Reinstatements limited by aggregate losses • Summary

  3. Reinstatement Provisions • Based on number of occurrences or aggregate losses • Free or paid • Pro rata to full limit • Pro rata to full time

  4. Event Loss Table • Basic output of catastrophe model • A table listing the possible events that affect the portfolio, along with the associated frequency and severity information

  5. Event Loss Table

  6. Reinstatements Limited by Aggregate Losses • Estimating the expected loss requires the aggregate loss distribution • Panjer’s recursive approach • Fourier transforms • Simulation

  7. Aggregate Loss Distribution

  8. Limited Expected Value

  9. Expected Loss for the Treaty

  10. Expected Premium

  11. Fair Up-Front Premium Rate Set expected premium equal to expected loss: Solve for R:

  12. Comparison of Results

  13. Summary

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