CAS Exam MAS-I Spring 2018, Question 7
Study guide: Exam MAS-I
You are given the following information about an insurer:
- The amount of each loss is an exponential random variable with mean 2000.
- Currently, there is no deductible and the insurance company pays for the full amount of each loss.
- The insurance company wishes to introduce a deductible amount,
d, to reduce the probability of having to pay anything out on a claim by 75%. The insurance company only pays the amount per loss exceeding the deductible. - The insurance company assumes the underlying loss distribution is unchanged after the introduction of the deductible.
Calculate the minimum amount of deductible, d, that will meet the requirement of having 75% fewer claims excess of deductible.
- A) Less than 2,000
- B) At least 2,000, but less than 2,300
- C) At least 2,300, but less than 2,600
- D) At least 2,600, but less than 2,900
- E) At least 2,900
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