CAS Exam MAS-II Spring 2019, Question 6
Study guide: Exam MAS-II
An insurance company is currently using a limited-fluctuation credibility approach for a line of business with the following assumptions:
- The claim frequency follows a Poisson distribution.
- The mean of the claim frequency is large enough to justify the normal approximation to the Poisson.
- The square root rule is used to determine partial credibility.
- The standard for full credibility is the number of claims at which there is a 99% probability that the observed aggregate loss is within 5% of the mean.
You are given the following information about a block of 10,000 policies:
- The mean claim frequency is 0.12.
- The mean claim severity is 100.
- The variance of claim severity is 14,400.
Calculate the credibility for this block of policies using the partial credibility method for aggregate loss.
- A) Less than 0.45
- B) At least 0.45, but less than 0.55
- C) At least 0.55, but less than 0.65
- D) At least 0.65, but less than 0.75
- E) At least 0.75
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