Using a Simulation Model to Incorporate the Cost of Catastrophe Excess Reinsurance into the Property Rate Level Indication Using the Net Cost of Reinsurance Method, or How I Learned to Stop Worrying and Love the Net Cost of Reinsurance Method

Although much has been written on how to properly determine a reinsurance premium, relatively little literature exists on how a primary insurer, once it pays that premium, should incorporate the cost of reinsurance into its rate level indication. This paper discusses two approaches for including the cost of catastrophe excess reinsurance in a primary company's rate level indication, review the pros and cons of each, argues why one method is preferred, and then illustrates how the preferred method can be applied with a complete example.