1. An insurer sells a very large number of policies to people with the following loss...
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1. An insurer sells a very large number of policies to people with the following loss distribution: $100,000 with probability 0.005 $ 60,000 with probability 0.010- Loss $20,000 with probability 0.020 $ 10,000 with probability 0.05 $ 0 with probability 0.915 = a. Calculate the expected claim cost per policy. b. Assume claims are paid one year after premiums are received and that the in- terest rate is 6 percent. Calculate the dis- counted expected claim cost per policy. c. Assume that the only administrative cost is the cost of processing an application, which equals $100 per policy, and that the fair profit loading is $50. What is the fair premium? 2. Redo problem 1, but include the expected cost of loss adjustment expenses (the cost of processing claims), assuming that loss ad- justment expenses equal 12 percent of losses and are paid at the same time that claims are paid. 1. An insurer sells a very large number of policies to people with the following loss distribution: $100,000 with probability 0.005 $ 60,000 with probability 0.010- Loss $20,000 with probability 0.020 $ 10,000 with probability 0.05 $ 0 with probability 0.915 = a. Calculate the expected claim cost per policy. b. Assume claims are paid one year after premiums are received and that the in- terest rate is 6 percent. Calculate the dis- counted expected claim cost per policy. c. Assume that the only administrative cost is the cost of processing an application, which equals $100 per policy, and that the fair profit loading is $50. What is the fair premium? 2. Redo problem 1, but include the expected cost of loss adjustment expenses (the cost of processing claims), assuming that loss ad- justment expenses equal 12 percent of losses and are paid at the same time that claims are paid.
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Related Book For
Introduction To Probability And Statistics
ISBN: 9781133103752
14th Edition
Authors: William Mendenhall, Robert Beaver, Barbara Beaver
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