CAS Exam 8 Fall 2017, Question 20
Study guide: Exam 9
An earthquake model produces the following damage function for a $1,000,000 home in California:
The probability of an event occurring with a given intensity is:
| Intensity | Probability |
|---|---|
| 3.5 | 10% |
| 6.0 | 5% |
| 8.5 | 2% |
Part a (0.75 points)
Identify what A, B, and C represent in the above graph.
Part b (1.75 points)
Determine the premium for this home given the following information:
- The insurer's expense load is 20% of premium
- The risk load is set to 8% of the standard deviation of the loss
Answer this question and see the worked solution