Odomirok.Ch15_(17S.13)_practice_01-04

I am confused on the following formula and statement in the practice example for the non-schedule P gross reserves:

The formula says to use (total net) but then the explanation says that "Non-lead B & C internally re-assume their pool % from A's gross amount above"

I understand that in these examples there is no outside reinsurance so it doesn't matter in this situation. However, in the case that there is outside reinsurance and direct loss does not equal net loss, which of these is correct?

In the non-lead company formula:
(total net) = A gross = A(direct) + B(net) + C(net)
OR
(total net) = A(net) + B(net) + C(net)

Comments

  • The latter is correct: (total net) = A(net) + B(net) + C(net).

    Non-schedule-P Gross keeps track of who assumes what. The non-lead companies "re-assume" their pooling percentage of the total net, and total net is the amount after all external cessions are subtracted out of all direct.

    You're right. In this case where there is no external cession, using A's gross for total net was ok. But in general, the formula above governs.

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