## 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 4 – Buhlmann Credibility Examples

Problem 4-A

You are given the following:

• The number of claims in a calendar year for a given risk follows a Poisson distribution with mean $\theta$.
• The prior distribution of $\theta$ has a uniform distribution on $(0.5,2.5)$.

After observing for three calendar years, this risk is found to have incurred 1 claim in year 1, 2 claims in year 2 and 3 claims in year 3.

Determine the Buhlmann credibility estimate for the expected claim frequency for the given risk in year 4.

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$\displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1.50$

$\displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1.65$

$\displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1.70$

$\displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1.97$

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

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Problem 4-B

You are given the following:

• The number of claims in a calendar year for a given risk follows a Poisson distribution with mean $\theta$.
• The prior distribution of $\theta$ has the following density function.
• $\displaystyle \pi(\theta)=\frac{1}{2} \ (2-\theta), \ \ \ \ \ \ 0<\theta<2$

The given risk is observed for 6 calendar years and is found to have incurred a total of 10 claims.

Determine the Buhlmann credibility estimate for the expected claim frequency for the given risk for the next calendar year.

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$\displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \frac{2}{3}$

$\displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \frac{62}{57}$

$\displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \frac{4}{3}$

$\displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \frac{5}{3}$

$\displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 2$

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