Hi, I have a question on the result section in the sample summary (last paragraph on page 4). The statement is: "The expected claims under the new policy 7xs3 is $23.0m (undiscounted) so the expected claims size for one additional claim under the new policy is $0.86m which is reasonable compared to an average expectation of $1m. The average expectation is $1m because the additional loss now covered by the new policy must be between $3m and $5m so the payout for ABC Re would average $1m." I do not really understand why the average expectation is $1m here. Could someone help? Thanks a lot!
The $1m comes from the fact that the retention limit has reduced from $5m to $3m. On average, claims would sit between these limits and say we'd expect an additional $1m. As ever with CP2, don't get too concerned about the details of any specific check or analysis. What's more important is you do something to try and explain why the results are reasonable (assuming they are!) - it may not be identical to those shown in the marking schedule.
