In the example on page 12, chapter 15: I am confused with the term revised net risk premium used in the example. Why is the revised net risk premium calculated in the example the amount that is to be paid for the XOL reinsurance (£20) that I, the insurer, is about to purchase, but not the net premium retained by the insurer (£100 - £20 = £80) after the reinsurance is purchased? Thank you.
Hi Purple, This is an error in our Course Notes. Well spotted! The last line of the example should say: "Then, using equation (2.3), the estimated cost of the reinsurance layer is £100 x (0.9 - 0.7) = £20 , so the revised net risk premium = £100 - £20 = £80 .” We'll post a correction on the website. Kind regards, Katherine.
