Finance Department

 

Date of this Version

2005

Document Type

Article

Citation

Journal of Actuarial Practice 12 (2005), pp. 137-157

Comments

Copyright 2005 Absalom Press

Abstract

A top and drop cover is a treaty that can be found on the retrocession market. It offers capacity that can be used either to protect a top layer or a working layer. The former is called a "top" and the latter is called a "drop." Using the traditional collective risk model, we demonstrate the use of a multivariate version of Panjer's algorithm to price this cover. We also compare the premium obtained within the exact model with the premiums obtained either with the Frechet bounds or with the wrong assumption of independence.

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