Exam MAS-II Practice Question 24
Study guide: Exam MAS-II
An actuary blends a risk class's own experience with a broader estimate, the complement, using a credibility factor Z:
\text{Estimate} = Z \times \text{Observed} + (1 - Z) \times \text{Complement}You are given the following three statements:
- I. If
Z = 0.40, the class's observed pure premium is $500 and the complement is $300, the credibility-weighted pure premium is $380. - II. Under Bühlmann credibility, if the variance of the hypothetical means rises while the expected value of the process variance and the number of observations stay the same, the credibility factor falls.
- III. Under limited fluctuation credibility, halving the tolerance from 5% to 2.5% (at a 90% probability level throughout) halves the credibility factor of a class with 400 claims.
Determine which of the above statements are true.
- A) I only
- B) I and II only
- C) I and III only
- D) II and III only
- E) The answer is not given by (A), (B), (C), or (D)
Answer this question and see the worked solution
Concepts tested
- Credibility
- Complement of Credibility
- Bühlmann Credibility
- Expected Value of Process Variance
- Variance of Hypothetical Means
- Limited Fluctuation Credibility
- Full Credibility Standard