Reinsurance Contracts with a Multi-Year Aggregate Limit

Excess of Loss reinsurance contracts commonly include an aggregate limit which specifies the maximum amount the reinsurer will pay under the contract. This paper discusses pricing implications of an aggregate limit which applies over multiple years. Monte Carlo simulations are used to test the sensitivity of the pricing to relationships between the average ground-up loss, the per-claim limit and the aggregate limit under the contract. A pricing example using historical data is also included. Risk charges and applications to clash covers are explored. Underwriting and reserving considerations of a contract with a multi- year aggregate are discussed.