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QUESTION 2 [25] MNM Insurance anticipates that its losses will increase in the following year and as the risk manager yo
Posted: Tue Jan 18, 2022 1:02 pm
by answerhappygod
- Question 2 25 Mnm Insurance Anticipates That Its Losses Will Increase In The Following Year And As The Risk Manager Yo 1 (43.92 KiB) Viewed 49 times
QUESTION 2 [25] MNM Insurance anticipates that its losses will increase in the following year and as the risk manager you would want to hedge against this risk Currently the index stands at a loss level of 70% This amounts to an index level of 0 3 or R300 000 per contract If the loss ratio declines as anticipated to a level of 75%, it will equate to a level of 0 25 which amount to R250 000 per contract Losses of R3 Billion are expected for the 10 companies using the pool 75% of these losses will be reported at the end of the quarter Total premium for the companies is R40 Billion Assume that MNM Insurance's earned premium is R200 000 How would you structure your hedge for MNM Insurance using a futures contract in light of the information supplied above? (5) b Calculate the price per contract for the futures (5) How many contracts should you but for MNM Insurance? (5) d Discuss the pros and cons of using alternative risk transfers (10) C