Pricing in General Insurance

404 Pricing in General Insurance

2. Produce a model for the number of interruption days, in exactly the same way as

we produce a severity model.

3. Produce an aggregate loss model through a Monte Carlo simulation as follows:

a. For each simulated scenario, simulate the number of losses N from the fre-

quency model

b. For each loss k = 1,…N, assign it to a specic property in the property schedule,j…

c. … and simulate a random number of days d(k) from the interruption mode. In

general, we may need to keep a tab of the number of days of interruption for

each property, so that a single property cannot have an interruption of more

than 365 days

d. The severity of the loss is X(k) = d(k) × MPL per day(j)

e. The total losses for th ...