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