Comparison of Pure Premiums (Covered Losses, Less AP)

Comparison of Standard Deviations of Results

Layer Price with One Reinstatement at100%

Comparison of Loaded Premiums

The Conflict

The conventional view of premiums as probabilities significantly understates the value of coverage with reinstatements at 100% as measured by our best current tools.

A one-at- 100% cover can actually be worth more than a cover without reinstatement !!

Actuaries need new practical approaches to risk that are consistent with our overall pricing philosophies.

Some Steps in the Right Direction

These two papers apply new tools to the problems of measuring and treating the marginal cost of risk:

• Game Theory - to allocate total risk charge to contracts


• Modern Computational Power - to directly measure change in indicated surplus levels

Comparison of Indicated Premiums: No Reinstatement vs. 1@100%

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