Pricing in General Insurance

46 Pricing in General Insurance

If there is an individual limit L but no AAD, there is a retained amount both below the

deductible and above the limit:

Totalretainedbelow thedeductiblemin EEL

Tot

=

∑

(, )X

j

aal retained abovethe limit ma

xE

EL

Totalc

=−

−

∑

(,

)XL

j

0

eeded min EEL=−

∑

(,max( ,))LX

j

0

(3.4)

If there is an AAD as well as an EEL and a limit L, the exact workings depend crucially

(although often not materially) on the exact wording of the contract. Specically, it depends

on whether the limit works on a ‘drop-down’ or on a ‘stretch-down’ basis.

If the policy works on a drop-down basis, once the AAD is reached the insured still has

a cover of size L: that is, instead of being covered between EEL and L + EEL as was the case

with the rst claims before ...