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Rate on line Question

C

ciza5

Member
Could you explain why the rate on line should be higher for the reinsurance contract with no reinstatements, on Q9(iii), April 1999?
 
The policy with the reinstatement covers two separate catastrophic events. The probability of a second CAT event is lower than the probability of one CAT event. Therefore with the reinstatement, as the reinsurer, you would be exposed to twice the losses but because the probability is low you will not charge twice the premium.

RoL is defined as premium/width of layer which is why the premium for the product with the reinstatement is lower.
 
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