Exam 9 Practice Question 1
Study guide: Exam 9
A primary insurer writes a commercial property policy on a single building with an insured value of $2,000,000. The policy premium is $16,000 and its expected loss ratio is 60%. The insurer keeps the first $400,000 of any loss and offers the reinsurer a facultative excess certificate of $1,200,000 excess of $400,000 on this building alone.
The reinsurer prices the certificate by exposure rating with the following exposure curve, where G(p) is the share of the building's expected loss from losses capped at a fraction p of insured value:
p (percent of insured value) |
20% | 60% | 80% | 100% |
|---|---|---|---|---|
G(p) |
0.49 | 0.76 | 0.85 | 0.93 |
Calculate the certificate's expected loss.
- A) $3,456
- B) $4,896
- C) $5,760
- D) $7,296
- E) $8,160
Answer this question and see the worked solution