The Practical Pricing of Excess of Loss Treaties: Actuarial, Financial, Economic and Commercial Aspects

In this paper, we investigate actuarial, financial, economic and commercial aspects of the pricing of an excess of loss treaty. The flexible model we propose allows the calculation of premium rates for all kinds of excess of loss treaties, even with specific clauses. We give a description of the methodology and we illustrate it with various numerical examples. The flexibility of the model easily allows for sensitivity analyses.

Keywords: Panjer's algorithm, inflation, payment pattern, stability clause, capital allocation, cost of capital, cash flow model, premium principle.