Exam C Practice Problem 26 – A Limited Fluctuation Credibility Example

Problem 26-A

You are given the following about a large portfolio of insurance policies:

  • For each insurance policy, the annual number of claims follows a binomial distribution with m = 3 and q = 0.3.
  • The claim size follows an inverse Gamma distribution with \alpha = 2.1 and \theta = 3.
  • The number of claims and the claim sizes are independent.
  • The full credibility standard has been selected so that actual claim costs will be
    within 10% of expected claim costs 90% of the time.

Using limited fluctuation credibility, determine the expected number of claims required for full credibility.

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 460

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 790

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 2895

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 3715

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 4600

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Problem 26-B

You are given the following about a large portfolio of insurance policies:

  • For each insurance policy, the annual number of claims follows a binomial distribution with m = 6 and q = 0.1.
  • The claim size follows a Gamma distribution with \alpha = 0.8 and \theta = 1.
  • The number of claims and the claim sizes are independent.
  • The full credibility standard has been selected so that actual claim costs will be
    within 10% of expected claim costs 90% of the time.

Using limited fluctuation credibility, determine the expected number of exposures required for full credibility.

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 514

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 582

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 970

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 5141

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 5818

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\copyright \ 2013 \ \ \text{Dan Ma}

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Exam C Practice Problem 25 – Estimation Based on Claim Experience

Problem 25-A

You are given the following information about an insured population:

  • For each risk in the population, the annual number of claims follows a Poisson distribution with mean \theta.
  • The parameter \theta follows a Gamma distribution with mean 2 and variance 0.8.

A risk is randomly selected from the insured population. After observing the selected risk for 10 years, the following is known.

  • Based on the number of claims observed in the first 9 years, the Bayesian estimate for the expected number of claims per year for this risk is 4.
  • Based on all the claims observed in the entire 10-year period, the Bayesian estimate for the expected number of claims per year for this risk is 3.92.

What is the number of claims observed in the last year of the observation period for the selected risk?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 3

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 4

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 5

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 6

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 7

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Problem 25-B

You are given the following information about an insured population:

  • For each risk in the population, the annual number of claims follows a Poisson distribution with mean \theta.
  • The parameter \theta follows a Gamma distribution with mean 1.6 and variance 0.32.

A risk is randomly selected from the insured population. After observing the selected risk for 10 years, the following is known.

  • Based on the number of claims observed in the first 5 years, the Bayesian estimate for the expected number of claims per year for this risk is 1.7.
  • Based on all the claims observed in the entire 10-year period, the Bayesian estimate for the expected number of claims per year for this risk is 1.8.

What is the number of claims observed in the last 5 years of the observation period for the selected risk?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 8

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 10

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 12

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 16

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 19

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\copyright \ 2013 \ \ \text{Dan Ma}

Exam C Practice Problem 24 – Bayesian Credibility Example

Both Problems 24-A and 24-B use the following information.

You are given the following information:

  • The claim size of an insured has an exponential distribution with mean \displaystyle \frac{1}{\theta}.
  • The parameter \theta has a Gamma distribution with mean 6 and variance 12.

A randomly selected insured has one claim of size 10.

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Problem 24-A

What is the Bayesian estimate of the expected amount of the next claim for this insured?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.25

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1.5

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 2.2

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 3.1

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 3.5

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Problem 24-B

What is the posterior probability that the size of the next claim for this insured will be greater than 5?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.12

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.15

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.19

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.21

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.25

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\copyright \ 2013 \ \ \text{Dan Ma}

Exam C Practice Problem 23 – Working with Credibility Estimates

Both Problems 23-A and 23-B use the following information.

You are given the following:

  • A portfolio of independent risks is divided into two classes.
  • Each class contains the same number of risks.
  • For each risk in Class 1, the claim size follows a zero-truncated geometric distribution with mean 1.5.
  • For each risk in Class 2, the claim size follows a zero-truncated geometric distribution with mean 2.5.
  • See definition of zero-truncated distribution here.

A risk is selected at random from the portfolio. The first claim observed for this risk is 3.

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Problem 23-A

Calculate the Bayesian credibility estimate of the expected value of the next claim that will be observed for this risk.

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 2.00

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 2.10

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 2.16

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 2.20

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 2.30

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Problem 23-B

Calculate the Buhlmann credibility estimate of the expected value of the next claim that will be observed for this risk.

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 2.00

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 2.10

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 2.16

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 2.20

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 2.30

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\copyright \ 2013 \ \ \text{Dan Ma}

Exam C Practice Problem 22 – Estimating Aggregate Claims

Both Problems 22-A and 22-B use the following information.

You are given the following:

  • The annual number of claims for a policyholder follows a binomial distribution with mean 0.5 and variance 0.375.
  • The following is the probability function of the claim size X.
      • \displaystyle \begin{bmatrix} X=x&\text{ }&P(X=x) \\\text{ }&\text{ }&\text{ }  \\ 10&\text{ }&0.35  \\ 20&\text{ }&0.35 \\ 30&\text{ }&0.25  \\ 40&\text{ }&0.05     \end{bmatrix}

  • The number of claims and the claim sizes are independent.

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Problem 22-A

Calculate the variance of the annual aggregate claim amount for the policyholder.

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 30

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 71.5

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 180

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 190

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 230

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Problem 22-B

In a certain year, the policyholder has incurred at least one claim and the aggregate claim amount is below 45. Given this information, what is the mean aggregate claim amount for the policyholder?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 9.0

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 10.0

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 12.5

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 20.0

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 21.3

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\copyright \ 2013 \ \ \text{Dan Ma}

Exam C Practice Problem 21 – Working with Aggregate Claims

Problem 21-A

You are given the following:

  • The annual number of claims follows a Poisson distribution with mean 800.
  • The claim size follows a Gamma distribution with \alpha = 5 and \theta = 2.
  • The number of claims and the claim sizes are independent.

Using the normal approximation for the distribution of aggregate claim costs, calculate the probability that the aggregate claim costs will exceed 8350?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.11

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.13

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.15

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.17

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.20

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Problem 21-B

You are given the following:

  • The annual number of claims follows a geometric distribution with mean 8.
  • The claim size follows an exponential distribution with mean 5.
  • The number of claims and the claim sizes are independent.

Using the normal approximation for the distribution of aggregate claim costs, calculate the 75th percentile of aggregate claim costs?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 64

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 66

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 68

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 70

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 75

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\copyright \ 2013 \ \ \text{Dan Ma}

Exam C Practice Problem 20 – Working with Full Credibility Standard

Problem 20-A

You are given the following:

  • The annual number of claims generated from a portfolio of insurance policies follows a Poisson distribution.
  • The claim size is modeled by the random variable Y=X^2 where X has an exponential distribution with mean 2.
  • The number of claims and the claim sizes are independent.
  • The full credibility standard has been selected so that actual claim costs will be
    within 5% of expected claim costs 95% of the time.

Using limited fluctuation credibility, determine the expected number of claims required for full credibility?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 3073

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 4610

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 6147

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 7684

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 9220

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Problem 20-B

You are given the following:

  • The annual number of claims generated from a portfolio of insurance policies follows a Poisson distribution.
  • The claim size is modeled by the random variable Y=4 X^2+32 where X has an exponential distribution with mean 2.
  • The number of claims and the claim sizes are independent.
  • The full credibility standard has been selected so that actual claim costs will be
    within 5% of expected claim costs 95% of the time.

Using limited fluctuation credibility, determine the expected number of claims required for full credibility?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 2017

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 3073

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 3457

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 4150

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 9220

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\copyright \ 2013 \ \ \text{Dan Ma}