2013.Fall 19 a
For this question, I thought XS Loss Factor = XS Ratio = k. Can you explain why this is not the case? What is the difference between an XS Loss Factor and an XS ratio?
For this question, I thought XS Loss Factor = XS Ratio = k. Can you explain why this is not the case? What is the difference between an XS Loss Factor and an XS ratio?
Comments
The notation in this question is confusing at first glance in our opinion. Candidates were expected to realize the loss elimination ratio, k, in the ICRLL adjustment is a ratio of loss dollars and here we're given loss ratios and standard premiums instead.
The excess loss factor is (E - E[A_D])/(Standard Premium) whereas the loss elimination ratio (also known as the excess ratio) k = (E - E[A_D])/E. We're also given the unlimited expected loss ratio which is E/(Standard Premium), so you can use these two pieces of information to solve for k.