SOA Exam FAM Sample Question 60
Study guide: Exam FAM
An individual performs dangerous motorcycle jumps at extreme sports events around the world.
The annual cost of repairs to their motorcycle is modeled by a Pareto distribution with \theta = 5000 and \alpha = 2.
An insurance policy reimburses motorcycle repair costs subject to the following provisions:
(i) The annual ordinary deductible is 1000.
(ii) The policyholder pays 20% of repair costs between 1000 and 6000 each year.
(iii) The policyholder pays 100% of the annual repair costs above 6000 until they have paid 10,000 in out-of-pocket repair costs each year.
(iv) The policyholder pays 10% of the remaining repair costs each year.
Calculate the expected annual insurance reimbursement.
- A) 2300
- B) 2500
- C) 2700
- D) 2900
- E) 3100
Answer this question and see the worked solution