An insurance company has a portfolio of policies for which claims occur as a Poisson process...
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An insurance company has a portfolio of policies for which claims occur as a Poisson process at a rate of 50 claims per year. The individual claim amounts in £s follow a log-normal distribution with parameters µ = 5 and o² = 1. The insurer includes a premium loading of 15% on its premiums for this portfolio. a) Find the initial capital required in order to ensure that the probability of ruin at the end of the first year is 2.5%. You should assume that the aggregate claim amount for a year is approximately normally distributed. b) The insurance company decides to reinsure 30% of each risk in the portfolio by taking out proportional reinsurance with a reinsurer that loads its premiums by 25%. Find the new level of initial capital required to ensure that the probability of ruin at the end of the first year is still 2.5%. An insurance company has a portfolio of policies for which claims occur as a Poisson process at a rate of 50 claims per year. The individual claim amounts in £s follow a log-normal distribution with parameters µ = 5 and o² = 1. The insurer includes a premium loading of 15% on its premiums for this portfolio. a) Find the initial capital required in order to ensure that the probability of ruin at the end of the first year is 2.5%. You should assume that the aggregate claim amount for a year is approximately normally distributed. b) The insurance company decides to reinsure 30% of each risk in the portfolio by taking out proportional reinsurance with a reinsurer that loads its premiums by 25%. Find the new level of initial capital required to ensure that the probability of ruin at the end of the first year is still 2.5%.
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Answer rating: 100% (QA)
To find the initial capital required to ensure a specific probability of ruin we need to calculate the ruin probability using the classical risk model In this case we can use the aggregate claim amoun... View the full answer
Related Book For
Statistics For Managers Using Microsoft Excel
ISBN: 9780133130805
7th Edition
Authors: David M. Levine, David F. Stephan, Kathryn A. Szabat
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