Can anyone explain to me the entire solution (The intuitive part and the mathematical part) in question 4.13? I do not understand the mathematical solution. Mind anyone show me a full working?
It's always helpful to post an image of the question so that students who haven't got the current CT6 notes can help you out. The intuitive part should be straightforward. If claims are getting more and more expensive but the retention limit is staying unchanged at 500 then over time more and more claims will be referred to the reinsurer. In the end, the insurer will end up just paying the retention limit on all of the claims. Hence their mean will be 500.
