Tag Archives: Variance

Exam C Practice Problem 9 – Examples of Claim Frequency Models

Problem 9-A

A portfolio consists of independent risks divided into two classes. Eighty percent of the risks are in Class 1 and twenty 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 \theta such that \theta follows a Gamma distribution with mean 1.6 and variance 1.28.
  • For each risk in Class 2, the number of claims in a year has a Poisson distribution with mean \delta such that \delta follows a Gamma distribution with mean 2.5 and variance 3.125.

An actuary is hired to examine the claim experience of the risks in this portfolio. What proportion of the risks can be expected to incur exactly 1 claim in one year?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.24

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.25

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.26

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.27

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.28

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Problem 9-B

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

The following provides more information about the two classes of risks:

  • For each risk in Class 1, the number of claims in a year has a Poisson distribution with mean \theta such that \theta follows a Gamma distribution with mean 2.4 and variance \displaystyle \frac{48}{25}.
  • For each risk in Class 2, the number of claims in a year has a Poisson distribution with mean \delta such that \delta follows a Gamma distribution with mean 3.75 and variance \displaystyle \frac{75}{16}.

An actuary is hired to examine the claim experience of the risks in this portfolio. Of the risks that incur exactly 2 claims in a year, what proportion of the risks can be expected to come from Class 2?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.34

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.35

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.36

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.37

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 0.38

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

Exam C Practice Problem 2 – Variance of Pure Premium

Problem 2-A

You are given:

  • For a given risk, the number of claims in a calendar year is 0 (with probability 0.4), 1 (with probability 0.5) and 2 (with probability 0.1).
  • In case of only 1 claim, the claim size will be 100 (with probability 0.75) and 200 (with probability 0.25).
  • In case of 2 claims, the claim size will be 100 (with probability 0.5) and 200 (with probability 0.5). The two claim sizes are independent.

Calculate the variance of the pure premium for this risk.

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 135

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 8,650

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 9,694

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 10,296

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 18,250

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Problem 2-B

You are given:

  • For a given risk, the number of claims in a calendar year is 0 (with probability 0.4), 1 (with probability 0.5) and 2 (with probability 0.1).
  • The claim size will be 100 (with probability 0.75) and 200 (with probability 0.25).
  • The number of claims and the claim size are independent.
  • In case of 2 claims, the two claim sizes are independent.

Calculate the variance of the pure premium for this risk.

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 310

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 7,189

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 7,236

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 7,719

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 96,100

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