CAS Exam 5 Fall 2015, Question 12

Study guide: Exam 5

Given the following information about a property:

• Value of property = $750,000
• Required Coinsurance = 85%
• Amount of Insurance purchased = $600,000
• There is a 30% chance of total loss, given a claim.
• All other losses are uniformly distributed between 0 and 750,000.
• Frequency of loss = 2%

Part a (1.25 points)

Draw a graph of the coinsurance penalty as a function of loss amount. Label and give values of all critical points.

Part b (1.25 points)

Calculate the rate per $1000 of insurance to be charged for this property, assuming no coinsurance penalty is used.

Answer this question and see the worked solution

Concepts tested

• Coinsurance Rating
• Coinsurance
• Pure Premium
• Frequency
• Probability
• Limited Expected Value

More questions from this set

• CAS Exam 5 Fall 2015, Question 11
• CAS Exam 5 Fall 2015, Question 13