Exam MAS-I Practice Question 17
Study guide: Exam MAS-I
A reinsurer's financial strength rating each year is Strong (state 1), Adequate (state 2) or Weak (state 3), with annual transition matrix
P = \begin{array}{c|ccc} & 1 & 2 & 3 \\ \hline 1 & 0.6 & 0.3 & 0.1 \\ 2 & 0.3 & 0.5 & 0.2 \\ 3 & 0.2 & 0.3 & 0.5 \end{array}In the long run the reinsurer is rated Weak 22.9% of the time. It is rated Strong now.
Calculate the expected number of years until it is first rated Weak.
- A) Less than 4.4
- B) At least 4.4, but less than 5.0
- C) At least 5.0, but less than 6.8
- D) At least 6.8, but less than 8.5
- E) At least 8.5
Answer this question and see the worked solution
Concepts tested
- Mean Time Spent in Transient States
- Markov Chain
- Transition Probability Matrix
- Stationary Distribution