• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

SP8 Question 15.3

Minh Ho

Very Active Member
The most important assumption of this question is: "The exposure curves is applied to every sum insured band" is missing, in my opinion.
Then, the same exposure curve is used at every band.

I also found the question not fit with what's mentioned in the Core Reading.
Core reading mention:
G(x) = LEV(x)/ E[Y]
E[Y] here as the expected loss cost of the exposure, then Limit Expected Value at x(%) of Sum Insured will be at the G(x) of Expected Loss Cost.
But in this question, the writer of the question assume E[Y] is the expected loss cost of the band, not the expected loss cost, right?

Please let me know if I'm wrong and if so what am I missing?
 
The most important assumption of this question is: "The exposure curves is applied to every sum insured band" is missing, in my opinion.
Then, the same exposure curve is used at every band.

The fifth assumption in the solution would cover this. 'The (single) exposure curve given can be applied to all the business to be reinsured.'

E[Y] here as the expected loss cost of the exposure, then Limit Expected Value at x(%) of Sum Insured will be at the G(x) of Expected Loss Cost.
But in this question, the writer of the question assume E[Y] is the expected loss cost of the band, not the expected loss cost, right?

We calculate the expected loss cost of each band separately, and than sum all these to find the expected loss cost for the whole risk.
 
Back
Top