Spring 2014 Q30
@graham
Not sure I understand the 10-10 rule here, it failed to meet this rule just because the freq is 5%? What if we modify this question to 10% prob of 25% of loss?
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@graham
Not sure I understand the 10-10 rule here, it failed to meet this rule just because the freq is 5%? What if we modify this question to 10% prob of 25% of loss?
Comments
Then it would pass the risk transfer test. The value "10" was chosen for consistency with the the 1% combined threshold in the ERD rule, but the ERD rule is probably a better test because it allows for either the frequency or severity of loss to be less than 10% provided the other is greater by at least the same amount. (The 10-10 requires that both be greater simultaneously.)