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Offering comparable coverages and policy limits

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The Risk Manager receives two bids from insurers offering comparable coverages and policy limits, but the premiums and deductibles are different. Using the information below and assuming an interest rate of 3%, show which bid the Risk Manager will choose.

Company A: $5,000 premium, $500 deductible per claim

Company B: $8,000 premium, $300 deductible per claim

The expected losses for the company are as follows:

Expected # of Losses Expected Size of Loss

4 $300
2 $500
1 $1000

Reference no: EM132779880

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