a) Describe the challenges in using catastrophe modelling in a reinsurance organisation. (10 marks)

b) An insurer agrees a surplus treaty where its own retention is 200,000 and the reinsurers limit is 6 lines. If the insurer underwrites a risk with a sum insured of 1.6m what is the facultative requirement for the risk? (5 marks)

c) An insurer has two WXL/R contracts in place as follows; 1 million xs 275,000 and 1 million xs 1.275 million.

It also has a CatXL arrangement of 10 million xs 1 million. A risk event occurs triggering all reinsurance arrangements. Losses on three properties are as follows:

Risk A 2.35 million

Risk B 1.72 million

Risk C 1.20 million

How are losses allocated between the insurer and the three reinsurers?