Assume a policy with a $2 million premium that reimburses the policyholder when aggregate losses for the calendar year exceed $10 million. Assume that the losses covered by the policy are generally low severity/high frequency, with minimal catastrophe potential (., the policy is meant to cover mostly pricing risk, not large loss risk). Also assume that the expected losses are $8 million, and that the expected losses normally occur evenly throughout the year. After one quarter, losses would have to be 500% of expected for attachment to occur. After two quarters, losses would have.
