What is Veblen effect.
15. State in detail the law of variable proportions. 16. Explain in detail the types of economies of scale. 17. Briey explain the classification of markets. 13. Host.r is the price and output determined under monopoly? 19. What are the features of perfect competition? Explain. 20. Discuss about price determination under perfect competition. (i) State the key difference between experience rating and exposure rating. [2] A commercial property insurer wishes to purchase $500,000 xs E200,000 risk excess of loss treaty reinsurance. The following information for Year 1 is available for the business which is to be reinsured: Table 1: Original accumulated loss costs by percentage of risk size % of Maximum Total value of losses Total of x% of Probable Loss s (x6 of Maximum Maximum Probable (x6) Probable Loss) Loss, for all losses which are > x% of Maximum Probable Loss COOO EOOO 10% 5,800 5.000 20% 8,700 5.700 30% 10,900 5.500 40% 13,600 5.200 50% 15,700 5.000 60% 18,600 3,500 70% 19,800 3.200 80% 21,100 2,600 90% 22,400 2.300 100% 25,000 110% 25,000 (ii) Determine the empirical exposure curve values from the loss data provided in Table 1. [2]For the same business which is to be reinsured, the following information for Year 1 is also available: original ultimate loss ratio for Year 1 (based on ground-up data): 65% expected future claims inflation: 6% p.a. Table 2: Original policy information for Year 1 Sum insured band Original premium f 0 to 50.000 8,000 50,001 to 100,000 9,000 100,001 to 150,000 8.500 150,001 to 200,000 7,000 200,001 to 300,000 13,500 300,001 to 400,000 12,000 400,001 to 500,000 10,000 500,001 to 750,000 11,000 750,001 to 1,000,000 7,000 Total 86,000Using the exposure curve derived in part (ii) and this additional information, the reinsurance company calculates the expected loss cost to the layer for this business in Year 2 as follows: Table 3: Calculations for the expected loss cost to the layer in Year 2 Average Original Attachment Exit Attachment Exit Cost to premium point % point % point % point % the layer insured of SI of SI of loss cost of loss (SD) cost EO00 f 250 13,500 75.47% 93.53% 567.56 350 12,000 53.91% 84.99% 1,170.88 450 10,000 41.93% 76.67% 1,516.72 625 11,000 30.19% 75.47% 65.78% 93.53% 1,984.19 875 7,000 21.56% 53.91% 58.85% 84.99% 1,189.28 Sum 6,428.64 (iii) State four assumptions that have been made in the calculations above. [2] (iv) Comment on the appropriateness of each assumption made in part (iii). [4] (v) List four adjustments that would be applied to the expected loss cost in order to obtain the premium to be charged for this layer. [2]
