Monthly Archives: April 2013

Exam C Practice Problem 17 – Estimating Claim Frequency

Both Problems 17-A and 17-B use the following information.

An insurance portfolio consists of independent risks.

For each risk in this portfolio, the number of claims in a year has a Poisson distribution with mean \theta. The parameter \theta follows a Gamma distribution.

A risk is randomly selected from this portfolio. Prior to obtaining any claim experience, the number of claims in a year for this risk has a distribution with mean 0.6 and variance 0.72.

After observing this risk for one year, insurance company records indicate that there are 2 claims for this risk.

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Problem 17-A

After knowing the insurance company records, what is the expected number of claims per year for this risk?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.60

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.83

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.91

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1.25

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 2.00

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Problem 17-B

After knowing the insurance company records, what is the variance of the number of claims per year for this risk?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \frac{26}{36}

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \frac{32}{36}

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \frac{35}{36}

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \frac{42}{36}

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \frac{45}{36}

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

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Exam C Practice Problem 16 – Another Poisson-Gamma Problem

Both Problems 16-A and 16-B use the following information.

A portfolio consists of independent risks divided into two classes. Sixty percent of the risks are in Class 1 and forty percent are in Class 2.

The following has more information about Class 1:

  • The annual number of claims for a single risk in Class 1 follows a Poisson distribution with mean 1.
  • The claim size follows a Gamma distribution with mean 1.6 and variance 1.28.
  • The number of claims and the claim sizes are independent

The following has more information about Class 2:

  • The annual number of claims for a single risk in Class 2 follows a Poisson distribution with mean 2.6.
  • The claim size follows a Gamma distribution with mean 2.5 and variance 3.125.
  • The number of claims and the claim sizes are independent

A risk is randomly selected from this portfolio. According to the records of the insurer, there are 4 claims for this risk in the amounts 2, 3, 5 and 5 within the last 3 years.

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Problem 16-A

Determine the Buhlmann credibility estimate for total claim costs for this risk in the next year.

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 3.7

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 3.7

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 4.4

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 4.5

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 5.0

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Problem 16-B

Determine the Buhlmann credibility estimate for the number of claims for this risk in the next year.

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1.33

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1.35

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1.46

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1.48

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1.64

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

Exam C Practice Problem 15 – Examples of Frequency-Severity Models

Problem 15-A

You are given the following:

  • The annual number of claims generated for a single risk follows a Poisson distribution with mean \theta.
  • The claim size follows a uniform distribution on (0,10 \theta).
  • The risk parameter \theta is a random variable with density function \displaystyle \pi(\theta)=\frac{1}{2} \ \theta where 0<\theta<2.
  • Given \theta, the number of claims and the claim sizes are independent.

According to the records of the insurer, there are 4 claims in the amounts 5, 5, 15 and 20 within the last 5 years.

Determine the Buhlmann credibility estimate for total claim costs in the next year.

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 9.39

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 9.61

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 9.69

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 10.25

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 10.69

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Problem 15-B

You are given the following:

  • The annual number of claims generated for a single risk follows a Poisson distribution with mean \theta.
  • The claim size follows a uniform distribution on (0,100 \theta).
  • The prior distribution of \theta has a uniform distribution on (0,5).
  • Given \theta, the number of claims and the claim sizes are independent.

According to the records of the insurer, there are 5 claims in the total amount of 360 within the last 3 years.

Determine the Buhlmann credibility estimate for total claim costs in the next year.

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 97.50

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 164.33

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 179.33

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 212.50

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 257.33

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

Exam C Practice Problem 14 – Examples of Limited Fluctuation Credibility

Problem 14-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 follows a uniform distribution on (0,t) where t is unknown.
  • The number of claims and the claim sizes are independent.

Using limited fluctuation credibility, how many expected claims are required to be 95% certain that actual claim costs will be within 5% of the expected claim costs?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1443

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1579

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1936

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1945

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 2050

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Problem 14-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 follows a distribution with the following moment generating function.
    • \displaystyle M(t)=\frac{1}{(1-10t)^4}
  • The number of claims and the claim sizes are independent.

What is the least number of expected claims that are required to be 90% certain that actual claim costs will be within 5% of the expected claim costs?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 820

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1230

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1353

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1376

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1396

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

Exam C Practice Problem 13 – Working with Aggregate Claims

Both Problems 13-A and 13-B use the following information.

A portfolio if independent risks is divided into two classes. Sixty five percent of the risks are in Class 1 and thirty five percent are in Class 2.

The risks in each class are assumed to follow identical annual aggregate claim distribution. The following shows the aggregate claim distributions for the two classes.

      \displaystyle \begin{bmatrix} X=x&\text{ }&P(X=x \lvert \text{Class 1}) &\text{ }&P(X=x \lvert \text{Class 2}) \\\text{ }&\text{ }&\text{ } &\text{ }&\text{ } \\ 0&\text{ }&\displaystyle \frac{24}{40} &\text{ }&\displaystyle \frac{4}{12} \\\text{ }&\text{ }&\text{ } &\text{ }&\text{ } \\ 5&\text{ }&\displaystyle \frac{6}{40}&\text{ }&\displaystyle \frac{2}{12} \\\text{ }&\text{ }&\text{ } &\text{ }&\text{ } \\ 10&\text{ }&\displaystyle \frac{7}{40}&\text{ }&\displaystyle \frac{3}{12} \\\text{ }&\text{ }&\text{ } &\text{ }&\text{ } \\ 15&\text{ }&\displaystyle \frac{2}{40}&\text{ }&\displaystyle \frac{2}{12} \\\text{ }&\text{ }&\text{ } &\text{ }&\text{ } \\ 20&\text{ }&\displaystyle \frac{1}{40}&\text{ }&\displaystyle \frac{1}{12}    \end{bmatrix}

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Problem 13-A

A risk is randomly selected from this portfolio and is observed to have 15 in aggregate claims in the first year.

What is the probability that the chosen risk will have 15 in aggregate claims in the second year?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.09

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.10

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.11

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.12

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.13

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Problem 13-B

A risk is randomly selected from this portfolio and is observed to have 15 in aggregate claims in the first year and 10 in aggregate claims in the second year.

What is the probability that the chosen risk will have 15 in aggregate claims in the third year?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.09

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.10

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.11

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.12

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.13

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

Exam C Practice Problem 12 – Buhlmann Credibility Estimates

Both Problems 12-A and 12-B use the following information.

A portfolio consists of independent risks divided into two classes. Sixty percent of the risks are in Class 1 and forty percent are in Class 2.

The following provides more information about the risks in Class 1:

  • For each risk in Class 1, the number of claims in a year follows a binomial distribution with mean 0.4 and variance 0.32.
  • For each risk in Class 1, the size of a claim is 5 with probability 0.6 and 10 with probability 0.4.
  • For each risk in Class 1, the number of claims and the claim sizes are independent.

The following provides more information about the risks in Class 2:

  • For each risk in Class 2, the number of claims in a year follows a binomial distribution with mean 1.6 and variance 0.32.
  • For each risk in Class 2, the size of a claim is 5 with probability 0.4 and 10 with probability 0.6.
  • For each risk in Class 2, the number of claims and the claim sizes are independent.

A randomly selected risk from this portfolio is observed for 3 years. Four claims are incurred in this period (the individual amounts are 5, 5, 5 and 10).

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Problem 12-A

Determine the Buhlmann credibility estimate of the next claim amount of this risk.

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 6.25

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 6.80

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 7.24

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 8.75

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 11.33

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Problem 12-B

Determine the Buhlmann credibility estimate of the aggregate claims in the next year from this risk.

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 6.80

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 7.57

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 7.96

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 8.04

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 8.33

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

Exam C Practice Problem 11 – Estimating Claim Frequency

Both Problems 11-A and 11-B use the following information.

A portfolio consists of independent risks divided into two classes. Seventy percent of the risks are in Class 1 and thirty percent are in Class 2.

The following provides more information about these risks:

  • For each risk in Class 1, the number of claims in a year has a Poisson distribution with mean 1.
  • For each risk in Class 2, the number of claims in a year has a Poisson distribution with mean 2.5.

A randomly selected risk from this portfolio has 2 claims in year 1 and 2 claims in year 2.

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Problem 11-A

What is the Bayesian estimate of the number of claims in the next year?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1.65

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1.66

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1.67

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1.68

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1.75

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Problem 11-B

What is the Buhlmann estimate of the number of claims in the next year?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1.65

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1.66

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1.67

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1.68

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1.75

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