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Advantages of high ded pgm
- Price flexibility while passing add'l risk to large insd
- Ameliorating onerous residual mkt charges
- Cash flow advantages
- Another vehicle to control losses
- Allowing "self-insurance"
Loss ratio approach for high ded pgms
- Definitions
- P = Premium
- E = ECR
- χ = per occurence charge
- ϕ = per aggregate charge
- Concept
- Total loss = PE
- Excess loss = PEχ
- Aggregate loss charge = PE(1 - χ)ϕ
- When does it work
- + consistenlty tied to pricing
- + benefits from its reliance on a more credible pool of cpies
- - ignores actual emerging experience (not useful late maturities)
- - may not not properly reflect accnt characteristics
Implied dvpmt approach for high ded pgms
- Develop full coverage losses
- Develop deductible losses
- Determine XS losses by differencing
- + provides estimate of XS loss at early maturities
- + more stable
- - does not explicitly recognize XS loss dvpmt
Direct dvpmt approach for high ded pgms
- Explicitly focus on XS dvpmt
- + uses XS loss experience directly
- - quite leveraged, extremely volatile
- - no estimate when XS losses have not emerged
Cred technique for high ded pgms
- Ult L = Rpt * LDF * Z + Exp Ult * (1 - Z)
- Z = 1 / LDF least to BF viewpoint
- + allows to determine liabilities either directly or inder
- + tie into pricing estimates
- + more stable
- - ignores actual experience to extent of compl of cred
Dvpmt model for high ded pgms
- LDF^L = LDF ΔR^_L
- XSLDF^L = LDF Δ(1 - R^L)
- LDF_t = R_t^L * LDF_t^L + (1 - R_t^L) * XSLDF_t^L
- where R = severity relativity, L - ded limit
Service revenue
- Determine ultimate ded losses
- Substract ult losses XS of aggregate limit
- Apply selected loss multiplier
- Determine total asset by substracting recoveries

Author

Esaie

33919

Card Set

Siewert

Description

Exam6 by Esaie Siewert

Updated

2010-09-11T03:01:33Z