CAS Exam MAS-II Fall 2018, Question 3
Study guide: Exam MAS-II
An insurance company sells homeowners' policies, each of which belongs to one of two possible risk groups, S and T. You are given the following information:
- Risk group S occurs 20% of the time.
- Risk group S has claim frequencies that are Poisson distributed with parameter
\lambda = 2. - Risk group S has claim severity that is uniformly distributed between 100 and 1000.
- Risk group T occurs 80% of the time.
- Risk group T has claim frequencies that are Poisson distributed with parameter
\lambda = 1. - Risk group T has claim severity that is uniformly distributed between 2000 and 8000.
- Claim frequency and claim severity are independently distributed given a risk group.
The Bühlmann credibility method is used to calculate the next year's predicted aggregate loss given three prior years of loss experience for a given risk.
Calculate the Bühlmann credibility factor for this risk.
- A) Less than 0.17
- B) At least 0.17, but less than 0.20
- C) At least 0.20, but less than 0.23
- D) At least 0.23, but less than 0.26
- E) At least 0.26
Answer this question and see the worked solution
Concepts tested
- Bühlmann Credibility
- Expected Value of Process Variance
- Variance of Hypothetical Means
- Aggregate Loss Model