CAS Exam 8 Fall 2017, Question 14
Study guide: Exam 8
A reinsurer has been supplied the following information from a large insurance company:
| Claim Size Range | Expected Number of Claims | Expected Ultimate Losses (000s) |
|---|---|---|
| $0 to $1,000,000 | 19,000 | $6,750,500 |
| $1,000,001 to $2,000,000 | 359 | $525,300 |
| $2,000,001 to $3,000,000 | 230 | $566,500 |
| $3,000,001 to $4,000,000 | 147 | $507,700 |
| above $4,000,001 | 264 | $1,650,000 |
| TOTAL | 20,000 | $10,000,000 |
The reinsurer is entering into an excess of loss contract with the primary insurance company. The reinsurer will pay all losses above a $5,000,000 per claim retention.
Part a (1.5 points)
Construct a graph of the excess severity function for claim sizes of $1,000,000, $2,000,000, $3,000,000, and $4,000,000.
Part b (1.5 points)
Calculate the reinsurer's expected losses under the proposed contract.
Answer this question and see the worked solution