Actuaries use many different techniques to price Reinsurance layers. One of the standard methods that Actuaries learn on Exam 8 is the "MBBEFD Curve" method for approximating SwissRe Property Curves, from Stefan Bernegger's Paper. This app provides a visual demonstration on how these MBBEFD curves are used to calculate the expected loss to a reinsurance layer for a single property policy.

Instructions

The various inputs are described below. The left rectangle represents a single insurance policy. By clicking and dragging on the insurance policy, draw a reinsurance layer. The layer will also be drawn along the exposure curve graph on the right. Following the calculations, the final resulting expected loss to the reinsurance layer is shown in the top right.

Slider Inputs

• TIV: The Total Insured Value. We assume 100% Insurance-to-Value for this demonstration, meaning the TIV is equal to the property replacement cost.
• Policy Deductible/Self Insured Retention: The amount of a loss a policyholder must pay until insurance coverage starts.
• Policy Limit (Auto-calculated): The TIV minus Deductible.
• Exposure Curve: Sets the "c" parameter for a one-parameter MBBEFD exposure curve as described in Bernegger. Certain c values correspond to approximations of SwissRe Y1-4 curves.

Other Inputs

• Policy Premium: The premium paid by the policyholder.
• Ground Up Loss Ratio: The amount of loss the insurer expects to pay out on the policy on average, as a percentage of premium. Note depending on the definition this may or may not include certain loss related expenses, such as claims handling, but will not include expenses such as office rent.

A Note on Premium

Premium calculations for insurance policies are highly complex. As a general rule, an increase in deductible will reduce the premium and an increase in TIV will increase the premium. This app includes an Auto Adjust premium option which defaults to on. This allows the user to see the general effect of changing the TIV and Attachment on estimated reinsurance losses while mitigating other distortions. It uses a simplified formula of 5% of the policy limit reduced by the deductible according to the current exposure curve.