SP8 Question 15.3

[Minh Ho]

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?

 

[Katherine Young]

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.