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# TIA Clark

Posted 09-23-2009 at 10:01 PM by Hiu

TIA Clark question Quiz 11, #5 - 09-03-2008, 06:57 PM

Hi,

Here's my question. In the numerator of the solution below, shouldn't [E; 500,000] be [E; 500,000/1.1] and if not, why? Thanks.

Problem:

You are given the following information:
• A ceding company purchases a property per risk excess of loss treaty
• ALAE is included with loss
• E[x;Z] = Z * (0.4)Z/1,000,000
• ALAE as a percent of loss capped at \$500,000 policy limit = 10%

Calculate the exposure factor for a \$750,000 xs \$250,000 treaty covering underlying policies with \$500,000 limits.

Solution:

Exposure Factor =
(E[x; 500,000] - E[x; 250,000 / 1.1]) / (E[x; 500,000])

= (E[x; 500,000] - E[x; 227,273]) / (E[x; 500,000])

(316,228 - 184,547) / 316,228 = 0.4164
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