Treatment of original deductibles when using exposure curves in risk XL treaty rating

[JamesP]

Hi,

In the section of the notes on Property XL rating using exposure curves, there is the following note in the section on the treatment of original deductibles:

"Note: the introduction of original deductibles has a proportionately greater impact on the original insurer’s loss cost than the reinsurer’s. All other factors being equal, therefore, we would expect the presence of original deductibles to increase the reinsurance rate when expressed as a percentage of the original premium."

Could someone please explain why this is the case?

Thanks!

 

[Busy_Bee4422]

Good day

The presence of an original deductible will move the layer covered by the insurer upwards to lower frequency claims but this will have a lower effect on the layer covered by the reinsurer. This will mean that the insurer's premium will get less as the layer they cover gets moved up meaning they will charge a lower premium. The reinsurer's layer will not be affected as much by these arrangements so will be a higher proportion of the insurer's now smaller premium.