CAS Exam 8 Fall 2017, Question 12
Study guide: Exam 8
A policy has a flat dollar deductible of M and a maximum payout on a loss by the insurer of N.
Part a (1 point)
Draw a Lee diagram representing the expected amount of loss incurred by this policy. Label the following:
- i. The axes
- ii. The deductible amount
- iii. The policy limit
- iv. The expected insured loss.
Part b (0.5 points)
Assume cumulative losses follow a distribution F(x). Write the formula for covered losses for this policy using:
- i. The layer method
- ii. The size method
Part c (0.5 points)
Briefly describe when the layer method may be preferred and when the size method may be preferred.
Part d (1.25 points)
Use a Lee diagram to demonstrate the consistency test of ILFs.
Answer this question and see the worked solution