confused by 2007 #50

[GiCAS]

I find the wording of this problem very confusing. Normally we are given a loss-size distribution in a problem of this type, but after looking at the answer it seems that the distribution given is that of houses in different ITV layers. Is this correct? Otherwise, I cannot make any sense of the CAS solution.

[2M]

Note that the TIA solution differs from the CAS solution here.

The insurance level increased from 108K to 114K and the CAS solution correctly accounts for the 0.15% frequency that falls in that range. What the CAS solution misses, that TIA picked up, is that the 0.1% frequency of losses in the 114K to 120K range will also have coverage increased from 108K to 114K.

[GiCAS]

Thanks, 2M. I was wondering about that also. It makes a little more sense now.