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1、2014-CAS8§26Clark,ReinsurancePricing,HCM5/13/14,Page1812Section26,Clark,ReinsurancePricing15621563ThisCASstudynotecoversthebasicpricingofreinsurance.Unfortunatelyitassumesyouknowalittleaboutreinsurance.1564Insurerscanbuyvarioustypesofinsurance-likeprotectionfromar
2、einsurerforvariousdifferentpurposes.Inordertomakeratesforreinsurance,actuariesfacemanyofthesamechallengesasmakingratesforprimaryinsurance.However,thereareadditionalchallenges,forexamplethereisoftenamuchsmallervolumeofdatatouse.“Amajordifferencebetweenreinsurancean
3、dprimaryinsuranceisthatareinsuranceprogramisgenerallytailoredmorecloselytothebuyer;thereisnosuchthingastheaveragereinsuredortheaveragereinsuranceprice.Eachcontractmustbeindividuallypricedtomeettheparticularneedsandrisklevelofthereinsured.Thisleadstowhatmightbecall
4、edthepricingparadox:Ifthereinsurercanpreciselypriceagivencontract,thecedingcompanywillnotwanttobuyit.Thatistosay,ifthehistoricalexperienceisstableenoughtoprovidedatatomakeapreciseexpectedlossestimate,thenthereinsuredwouldbewillingtoretainthatrisk.”1565Areinsurance
5、treatymaybeona“lossesoccurring”basis;thetreatycoverslossesthatoccurduringthetreatyperiod.1566Soforexample,atreatyonalossesoccurringbasisthatwaseffectivefromJanuary1,2015untilDecember31,2015,wouldcoverlossesthatoccurredduring2015.Instead,areinsurancetreatymaybeona“
6、risksattaching”basis;thetreatyonarisksattachingbasiscoverslossesonpolicieswrittenduringthetreatyperiod.Soforexample,atreatythatwaseffectivefromJanuary1,2015untilDecember31,2015,wouldcoverlossesonpolicieswrittenbytheprimaryinsurerduring2015.LossesOccurringBasis⇔Acc
7、identYear.RisksAttachingBasis⇔PolicyYear.1562“BasicsofReinsurancePricing,”byDavidR.Clark,CASStudyNote,firstversion1996,updated2014.CandidatesarenotresponsibleforSection6ofthepaper.CASLearningObjectivesC3andC4.1563Priorto2011,thisstudynotewasonExam6.1564Whenwritten
8、,thestudynotebyClarkwasoneofseveralreadingsonreinsuranceonthesameexam.Currently,reinsuranceisoneoftheassignmentsforthefirstCASonlinecoursewhichispartoft
