PE1_Exam8_Q19

dxsholdendxsholden
edited May 2024 in GLM.Basics

Can you explain why exposure are related in ILF factors? To solve this problem you have to figure out the portions of the losses in each layer that would be subject to the reinsurance layer. You do so by using the ILFs, why can you do this?

Comments

  • adminadmin

    Let's take a simplified example. I have two auto policies, one with a 25k limit and another with a 50k limit. Assume drivers who take either policy have the same loss frequency. Further assume that any loss is a total loss on the policy.

    Then the pure premium relativity (ILF) is 2.000 for the 50k policy, treating the 25k limit as the base limit because a loss on a 50k policy is twice as expensive as a loss on a 25k policy. Equivalently, each 50k policy has the same level of risk (pure premium) as insuring two 25k policies. The ILF allows us to translate into an equivalent number of base level exposures.

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