CAS Exam MAS-II Fall 2019, Question 5
Study guide: Exam MAS-II
An insurance company writes insurance in three states. The company experiences the following aggregate loss distributions over the past eight years:
| State | Mean Annual Loss (in millions) | Standard Deviation of Annual Loss (in millions) |
|---|---|---|
| U | 147 | 72 |
| V | 57 | 27 |
| W | 54 | 24 |
Assume that the volume of business and the true underlying size of the average loss have not changed for these eight years and will continue to remain stable next year.
Calculate the estimate of next year's aggregate loss for State W using the nonparametric empirical Bayes method.
- A) Less than 60 million
- B) At least 60 million, but less than 65 million
- C) At least 65 million, but less than 70 million
- D) At least 70 million, but less than 75 million
- E) At least 75 million
Answer this question and see the worked solution
Concepts tested
- Empirical Bayes Credibility
- Bühlmann Credibility
- Expected Value of Process Variance
- Variance of Hypothetical Means