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Exam C Practice Problem 25 – Estimation Based on Claim Experience

8. Credibility May 10, 2013 Leave a comment

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?

$\text{ }$

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

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

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

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

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

$\text{ }$

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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?

$\text{ }$

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

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

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

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

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

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Answer Keys

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

Exam C Practice Problem 21 – Working with Aggregate Claims

3. Aggregate Models May 3, 2013 Leave a comment

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

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

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

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

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

$\text{ }$

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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?

$\text{ }$

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

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

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

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

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

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Answer Keys

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

Exam C Practice Problem 20 – Working with Full Credibility Standard

8. Credibility May 2, 2013 Leave a comment

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?

$\text{ }$

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

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

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

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

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

$\text{ }$

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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?

$\text{ }$

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

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

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

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

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

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Answer Keys

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

Exam C Practice Problem 17 – Estimating Claim Frequency

8. Credibility April 29, 2013 Leave a comment

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?

$\text{ }$

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

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

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

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

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

$\text{ }$

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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?

$\text{ }$

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

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

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

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

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

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Answer Keys

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

Exam C Practice Problem 16 – Another Poisson-Gamma Problem

8. Credibility April 29, 2013 Leave a comment

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.

$\text{ }$

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

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

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

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

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

$\text{ }$

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Problem 16-B

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

$\text{ }$

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

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

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

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

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

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Answer Keys

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Exam C Practice Problem 14 – Examples of Limited Fluctuation Credibility

8. Credibility April 27, 2013 Leave a comment

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?

$\text{ }$

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

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

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

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

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

$\text{ }$

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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?

$\text{ }$

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

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

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

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

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

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Answer Keys

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Exam C Practice Problem 12 – Buhlmann Credibility Estimates

8. Credibility April 26, 2013 Leave a comment

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