I've been looking at practice question 6 in revision booklet 3:
claim amounts: X ~ Exp (1/5000)
# claims: N ~ Poi(5)
XOL reinsurance with retention limit 6000
Let Z be the amount paid by the reinsurer on individual claim i.e.
Z = 0 , X < 6000
Z = X - 6000 , X >= 6000
Now if Sr is aggregate claim paid by reinsurer, then
E[Sr] = E[N]E[Z] --- happy with this
but the answer in the booklet then states:
var[Sr] = E[N]E[Z^2]
Where does this expression for var[Sr] come from?
I was using var[Sr] = E[N]var[X-M]+var[N](E[X-M])^2 from pg 16 tables.
Any help would be much appreciated.
Thanks.
Last edited by a moderator: Apr 2, 2008