Part 6: 2003 # 40

[Avi]

If the reinsurer's ALAE load is given, and the average ALAE for each policy limit for the primary company is given, why shouldn't we have to take the losses exposed in each layer (Direct Premium Written * Loss Ratio {.55} ] and divide out the ALAE (multiply by a factor of (Loss/(Loss+alae)))?

The reinsurer has its own 10% load, and should apply that to the PURE losses?

This would give a result of 19.81% vs. 19.33%

Thanks

[Rice]

They way I understood the model answer is that you don't load the reinsurer's 10% provision.

[Avi]

That's the way I understand the model answer too, b/c the ALAE load is in the primary DPW, but WHY?

Too late now anyway :)

[ramanujan]

ALAE Load in not explicitly included because it is included in the ILF. Loss carefully at solution #2.

Moreover, if you take the average loss + average ALAE @ each policy limit and divide by the average loss and ALAE @ 500K limit, you will get the same ILF as given in the problem.

Hope this clears the confusion.

[Avi]

Thanks!

[N Huskers]

yes, that is how I did it too. the readings were pretty clear (for once!)

[Archen]

Well, valuable, haven't noticed before.