Consider a food manufacturing plant with the following characteristics:

• TIV (PD) = £200M, TIV (BI) = £200M, MPL (PD) = £130M, MPL (BI) = £200M

• Local deductible (LD) for PD = £1M, LD(BI) = 45d

• Indemnity period (IP) = 12 months (from the accident date)

The underwriting guidelines for food manufacturing plants are as follows:

• The standard deductible is £1M for PD and 30 days for BI.

• Assume no allowance for losses between MPL and TIV.

• The exposure curves in use are the Swiss Re curve with c=3.8 for PD, c=3.1 for BI. In both cases, these are defined above the standard deductible.

• The base rate is equal to 0.7‰ (PD), 1‰ (BI)

• The premium breakdown is as follows: 80% to cover the expected losses, 20%

to cover costs and profit.

• The company also has a deductible impact table as below. The company uses it for both PD and BI.

LD/SD=50% LD/SD=100% LD/SD=150% LD/SD=200%

MPL=£100M- 125% 100% 90% 85%

MPL=£150M 120% 100% 92% 87%

MPL=£200M+ 115% 100% 93% 88%

Where ‘MPL=£100M-’ means an MPL of £100M or less, and ‘MPL = £200M+’ means an MPL of £200M or more.

Calculate:

i. The rate at the local deductible for both PD and BI ii. The expected losses to the layer £90M xs £10M (all in excess of the local deductible)