Hi all, Question are to calculate the expected aggregate claim cost for the reinsurance layer of $1,000,000 excess of $1,000,000, under the following options: (a) unlimited free reinstatements with $1,000,000 annual aggregate deductible Aggregate Limit ($) | Expected Aggregate Claim Cost ($) 1,000,000 | 350,000 2,000,000 | 525,000 3,000,000 | 976,000 4,000,000 | 1,090,000 Unlimited | 1,289,000 The answer to this is $1,289,000 - $350,000 = $939,000 I do not understand why is the aggregate deductible $350k, shouldn't it be $1,000k? Thank you all in advance!!!
This question was tricky in that there were different ways of interpreting the information in the question, which wasn't entirely clear (always state your assumptions in any interpretation, so that the examiners can take that into account). Unlimited free reinstatements implies the aggregate cover is effectively unlimited. So 1289k. From this we deduct the expected amount the cedant will bear by way of the aggregate deductible, which is 350k. Full details in ASET.
Hi Ian! Thanks for your reply. Yeah i actually bought the ASET. But I do not understand what does it mean by "by way of the aggregate deductible, which is $350k". I thought the aggregate deductible is $1,000k?
Yes, the agg deductible is 1000k, but the 'aggregate claims cost' when you have that deductible is 350k (yes, I know, the terminology is dodgy!).
