SOA Exam FAM Sample Question 36

Study guide: Exam FAM

Losses in Year 1 follow a Pareto distribution with \alpha = 2 and \theta = 5. Losses in Year 2 are uniformly 20% higher than in Year 1. An insurance covers each loss subject to an ordinary deductible of 10.

Calculate the Loss Elimination Ratio in Year 2.

• A) 0.567
• B) 0.625
• C) 0.667
• D) 0.750
• E) 0.800

Answer this question and see the worked solution

Concepts tested

• Loss Elimination Ratio
• Inflation
• Pareto Distribution
• Limited Expected Value
• Scale and Shape Parameters

More questions from this set

• SOA Exam FAM Sample Question 35
• SOA Exam FAM Sample Question 37