i'm a bit confused by Q&A bank 6, question 4, part (ii) which asks you to calculate the burning cost for an xol layer
The solution calculates the on-level monetary average annual cost to layer from the historical claims data. But then it does nothing else.
I thought a further couple of steps were required - firstly converting the premiums to be on-level (using historical and projected rate changes), and secondly, deviding the on-level claims by the on-level premiums to give a rate (expressed as a percentage), which is the burning cost.
Am I confusing buring rate with burning cost, or missing something? When asked to calculate a burning cost, is the solution a monetary amount, or a rate?
Last edited by a moderator: Aug 15, 2011