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Pricing reinsaurance with deductibles

T

triosfall

Member
Hi all,

Say we have 2 XoL RI contracts:
1) A 1m xs 2m contract with no deductibles
2) A 1m xs 1m contract with a 1m aggregate deductible

Which contract, all else being equal, would have a higher premium charged by the reinsurer?

I guess if there were 3 claims of £1.5m, then 1) would never provide recoveries but 2) would recover 500k on claim 3 once claims 1 and 2 have burnt through the deductible, so 2) is more expensive, but just want to check this as i get confused when aggregate deductibles are applied to 'individual' XoL contracts (I associate individual XoL with individual losses so don't like the idea of aggregations here!). Thanks for the help
 
Hi
Conceptually you would expect the one with a higher expected claims cost to be the one that has a higher premium all other things being equal. I expect the second one to pay more claims. I assume that the 1.5m is the total of all the claims and there is no each and every loss deductible that restricts claims on the first two claims.
 
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