You are the actuary in charge of purchasing a reinsurance contract for your insurance company. You...

You are the actuary in charge of purchasing a reinsurance contract for your insurance company. You have determined that the losses that you want reinsured follow a uniform distribution on the interval [1000, 2000]. You have a choice of two reinsurance contracts for these losses. The first contract will pay 90% of the loss, while the second contract will pay up to a maximum limit, where the limit is set so that the expected payment for both contracts are the same. Find the ratio of the variance of the reinsurance payment under the second policy to the variance of the reinsurance payment under the first policy.

A. 1.5

B. 1.2

C. 0.9

D. 0.6

E. 0.3

Expert Solution

orchestra answered 2 years ago

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