Certification Criteria Clarification

tffnychng

In the first part of the solution where we are determining if the criteria are met, one of the conditions stated is "insurer losses are ≥ $5 million". However, the source paper makes it sound like it would have to be industry losses that are > $5M. I get that if an insurer's loss > $5M, then that means industry losses would also be too, but I'm wondering if anyone could be able to confirm which would be the right interpretation? (like in the case that there are 2 losses of $3M from different insurers, if it would meet the condition or not)

graham

I just reread that example and I can see that it was a bit confusing. I modified the given information to say this:

• losses in the U.S. (or air carriers or vessels) ≥ $5 million
• aggregate insurance industry losses = $80 billion
• ABC Insurer losses = $250 million

So the first line above is part of point [1] under "Loss-Sharing Criteria", and the second line above is part of point [2]. (See wiki article or source text for points [1] & [2].) Then you have to calculate how much of ABC Insurer's $250 million loss is covered.

An insurer could still get reimbursement even if their individual losses were < $5 million. The attachment point would be determined by the deductible, which is calculated as 20% of the direct earned premium.

Then in the first part of the solution, I edited the second bullet point to say:

• losses in the U.S. (or to U.S air carriers or vessels) ≥ $5 million

instead of "insurer losses ≥ $5 million". Let me know if that makes more sense.