Reference no: EM132903309
"Leisure Gyms" own 5 gyms. 4 in the USA and 1 in Europe. All the gyms operate independently from each other. You are an underwriter and have to deal with various/problems for "Leisure Gyms" as part of their 2021 policy renewal. They have provided you with the following information in advance of their 2021 renewal on January 1st.
Material Damage & Business Interruption Insurance
GYM A - Sum insured of $12,000,000 as of 1.1.2021
GYM B - Sum insured of $20,000,000
GYM C - Sum insured of $13,000,000
GYM D was acquired in 2021 for $20,000,000. It is a 90,000 square foot facility and some amendments have been made since it was bought:
-Sprinkler System installed - $350,000
-New Gym Equipment purchased - $250,000
-2020 policy had demands of $700,000 for Public Authority Demands.
-Construction Cost - $100 per square footThe fifth gym in Europe is going under repairs and will be re-opening in May 2021.
Projected Revenue for 2021
Gym A - $48,000,000
Gym B - $80,000,000
Gym C - $52,000,000
Gym D - $60,000,000
Insurable Interest (Total fixed costs, Depreciation, Net profits)
Business Interruption Insurance:
Gym A - 60%
Gym B - 45%
Gym C - 50%
Gym D - 48%
"Leisure Gyms" would prefer to have all insurances for the hotel contained, if at all possible, in one insurance programme.
As an underwriter, you have retrieved the following details from your guides and from other information:
-The rate for material damage & business interruption risks is a uniform 0.12%
-The Probable Maximum Loss factors from prior surveys are 60%, in each case, for material damage and 50% for business interruption.
-The maximum lint on any risk for your reinsurance company is $5,000,000
QUESTIONS
I. What sum insured for material damage and business interruption would you recommend for the 2021 policy?
II. What is the overall risk premium for the material damage and business interruption exposures?