Estimating Boiler and Machinery Maximum Probable Yearly Aggregate Loss Using a Microcomputer Spreadsheet Simulation

In this study we present a framework and methods to estimate the Boiler and Machinery pure premium distribution and maximum probable yearly aggregate loss amount (MOY) for a hypothetical electric power plant. We use the collective risk theory formulation and combine actual severity data from electric power plants with published object failure rates to generate the pure premium distribution. We obtain our results using a microcomputer spreadsheet simulation and compare them to results obtained using the Pearson approximation method. We conclude that results from reliability studies have direct applications to Boiler and Machinery insurance calculations, and find the spreadsheet simulation method intuitive and practical to implement.