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You are on page 1of 4

CS/JAN 2013/ASC456

FINAL EXAMINATION

COURSE

RISK MODELING

COURSE CODE

ASC456

EXAMINATION

JANUARY 2013

TIME

3 HOURS

INSTRUCTIONS TO CANDIDATES

1.

2.

Answer ALL questions in the Answer Booklet. Start each answer on a new page.

3.

Do not bring any material into the examination room unless permission is given by the

invigilator.

4.

Please check to make sure that this examination pack consists of:

i)

ii)

an Answer Booklet - provided by the Faculty

This examination paper consists of 4 printed pages

Hak Cipta Universiti Teknologi MARA

CONFIDENTIAL

CONFIDENTIAL

CS/JAN 2013/ASC456

QUESTION 1

The loss random variable X has p.d.f. f{x) = 1 / 1 5 0 , 0 <x <1S0. Two Insurance policies

are defined by

(i)

p^x) =

(ii)

P a (*)=f

fex

, .r > 0

7n

'X%2i

Each policy can be purchased for the expected value of the claims to be paid. The two

policies have the same premium. Calculate k.

(8 marks)

QUESTION 2

A decision maker's utility function is given by u(;x) = x2. She is willing to pay 7 as an

insurance premium against a random loss Y which has a uniform distribution over the

interval (0,15). She is indifferent to having or not having insurance. Calculate her wealth.

(10 marks)

QUESTION 3

X and Xz are independent random variables whose possible values are non-negative

integers.

You are given:

X

Fi(x-)

F (a) U)

0

1

2

3

0.45

0.80

0.95

1.00

0.20

0.47

0.90

0.93

Determine / 2 (2).

(10 marks)

QUESTION 4

If the number of claims is negative binomially distributed with parameters r = 30, -p- 0.3

and the claim distribution p(x) = e~x, x > 0 then what is Msi1)

?

(10 marks)

CONFIDENTIAL

CONFIDENTIAL

CS/JAN 2013/ASC456

QUESTION 5

An insurance company has two classes of insureds:

Class

Probability of a Claim

Benefit

Smoker

Non-smoker

0.7

0.3

3

3

Number of

Policies

125

275

The company charges each smoker a relative security loading that is two times the relative

security loading charged to each non-smoker. The company wants the total premium

collected to exceed the 95t?H percentile of the aggregate claims distribution. Determine the

smallest relative security loading for non-smokers. (Use the fact that Pr{Z < 1.645) = 0.95,

where Z is the standard normal random variable.)

(12 marks)

QUESTION 6

An insurance company has a portfolio with expected claim payments per unit of time equal

to 60. Initial surplus is 150. If the company were to experience claims, x, at times t shown

below:

t:

x\

0.5

80

1.0

50

1.5

90

2.0

70

2.5

40

then what is the minimum relative security loading such that ruin would not occur during the

time interval 0 < t < 2.5 ?

(12 marks)

QUESTION 7

A claim distribution, F(x), satisfies:

EUdl =7-d

E[Id]=0

, d = 0,1,,...... 10.

, d = 11,12,13,...

(8 marks)

QUESTION 8

Apply the chain ladder method to the given IBNR triangle with cumulated figures. What

could be the reason why run-off triangles to be processed through the chain ladder method

are usually given in a cumulated form?

CONFIDENTIAL

CONFIDENTIAL

Year of

origin

1

2

3

4

5

CS/JAN 2013/ASC456

4

1

232

258

221

359

349

2

338

373

303

430

Development year

3

373

429

307

4

389

456

5

391

(14 marks)

QUESTION 9

a)

(4 marks)

b)

Based on the table below, determine the percentage of the basic premium to be paid

by a Dutch driver, who originally entered the bonus-malus scale at level 100%, drove

without claim for 7 years, then filed one claim during the eighth policy year, and has

been driving claim-free for the three years since then.

Step

9

10

11

1

2

7

8

3

4

5

6

37.5

45

40

%

120

100

55

50

90

80

70

60

0

10

11

12

2

3

4

8

9

5

6

7

claims

1 claim

6

7

7

1

1

4

5

1

2

1

3

2

3

2

3

1

1

1

1

1

1

1

1

claims

1

1

1

3+

1

1

1

1

1

1

1

1

claims

Table: Transition rules and premium percentages for the Dutch bonus-malus system

(2 marks)

QUESTION 10

A compound Poisson process has an adjustment coefficient of 10. A second compound

Poisson process is identical to the first except that the claim amounts and premiums are

double those of the first process. Calculate the adjustment coefficient for the second

process.

(10 marks)

CONFIDENTIAL

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