## Usage of Excel in stochastic/probabilistic Loss calculation – simulation of loss ratios for 2m of water depth caused by Tsunami.

### accounting

##### Description

HOMEWORK

Usage of Excel in stochastic/probabilistic Loss calculation – simulation of loss ratios for 2m of water depth caused by Tsunami.

1. Go to MS Excel.
2. Simulate 1,000 realisations from a distribution (mean loss ratio = 55%, standard deviation 20%).
3. The insured value of a house is 100,000 AUD (single storey masonry). Calculate the loss for each realisation.
4. Apply a tsunami flood limit of 15,000 AUD to each realisation.
5. Calculate the mean for loss before (=from ground up [FGU] loss) and after limit application (=gross loss [GR]).
6. Compare with deterministic approach (no simulation just use mean loss ratio to calculate both FGU and GR loss).

ANALYSIS:

• Which distribution would you use to simulate the loss ratios and why?
• Is the loss ratio appropriate for the particular risk (a tree house) a and peril (tsunami)?
• What is/are the practical effect/s of using probabilistic approach rather than the simple deterministic one? Is there a difference in this/these effect/s between FGU and GR loss?

Please send the Excel file with simulation and answers.