A 2017 Q2

Could someone please explain part 2?

Thanks!

 

Ouch! very fewer marks for this odd question.

Understanding given information:-
Let Y= aggregate loss cost, and \( x_i \)= loss from \(i^{th}\) case in the period of coverage
Note: a case could be an individual loss or a loss from individual event, not given in the question. That won't alter the answer anyway.
So, \(Y=\Sigma_i max(x_i-1000000,0)\)
Now, table is given for \(LEV_Y(Aggregate~Limit) \)
Note: here LEV is based on absolute numbers rather than relative to EML/PML.

there are 2 implicit assumptions in the given answer that I could think of.
1) \( x_i <= 2000000 \) for any i. Otherwise, that loss will be uncovered before any reinstatement occur. Or, maybe it is possible to allow for a loss in the layer before and after reinstatement in part.
2) there is no payable reinstatement allowed. Otherwise, calculations are not straightforward.
Answers:
a)
from unlimited free reinstatements - there is no aggregate limit
from AAD - first 1000000 will be reduced that would otherwise be counted as the final loss
So, LEV(Unlimited)-LEV(1000000) or E(Y)-LEV(1000000)=1289000-350000=939000
b)
from 1 free reinstatement - the aggregate limit is twice of the given loss layer.
So, LEV(2000000)=525000
c)
from AAD - first 1000000 will be reduced that would otherwise be counted as the final loss
would be counted as the loss is answered in 'b)'
So, LEV(2000000)-LEV(1000000)=525000-350000=175000

PS: I don't know how the first alternative to 'c)' is calculated. maybe, they took Deductible as aggregate excess besides case excess.