This is regarding operational losses of a financial institution with insurance. How is part (c) computed?

** Referring to part (c) First is 5000. Am I supposed to replace the 8000 with 5000 while maintaining its probability? For the second part, which includes the cost of insurance, do I add it to the loss amount for each group of risk?**

  • $\begingroup$ With insurance, 8000 losses are replaced by 5000 losses, but the company has a guaranteed loss of 500 (the insurance cost). $\endgroup$ – Attack68 Jul 17 '19 at 9:43
  • $\begingroup$ @Attack68 For losses with frequency 2, do I consider the insurance cost twice or just once? $\endgroup$ – Ash Raj Jul 17 '19 at 9:58
  • $\begingroup$ No, 500 is a guaranteed loss, always payable. It is not only payable IF there is a loss $\endgroup$ – Attack68 Jul 17 '19 at 9:59
  • $\begingroup$ The insurance premium is only paid once per year. $\endgroup$ – Attack68 Jul 17 '19 at 10:00

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