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Department of Mathematics and Statistics Examination: This Paper Is For Bentley Campus Students
Department of Mathematics and Statistics Examination: This Paper Is For Bentley Campus Students
Department of Mathematics and Statistics Examination: This Paper Is For Bentley Campus Students
Exam Conditions:
For Examiner Use Only
This is a CLOSED BOOK exam - no text books or written materials permitted
Q Mark
Students are permitted to write notes during reading time in the margins or the
reverse of the exam paper 1
The students exam paper must be returned inside the answer book 3
7
Materials To Be Supplied To Students:
8
Statistical tables and formulae book
9
Instructions To Students:
10
11
12
13
14
15
16
17
18
Total ________
Page 1 of 21
Semester 2 & Trimester 3B, 2015
STAT3002 Risk Analysis and Credibility Theory
IMPORTANT INFORMATION
The possession or use of mobile phones, or any other device capable of communicating information, is prohibited during
examinations.
Electronic Organisers/PDAs (with the exception of calculators) or other similar devices capable of storing text or restricted
information are prohibited during examinations.
Only calculators approved specifically by the school/department may be used during this examination. Prior to the
commencement of the examination, calculators will be checked for compliance by the examiner.
Any breach of examination regulations will be considered cheating and appropriate action will be taken in accordance
with University policy.
Page 2 of 21
Semester 2 & Trimester 3B, 2015
STAT3002 Risk Analysis and Credibility Theory
Question 1
The number of claims from a certain portfolio of motor policies has a Poisson distribution
with parameter . The parameter varies over the portfolio in such a way that has an
exponential distribution with parameter .
Page 3 of 21
Semester 2 & Trimester 3B, 2015
STAT3002 Risk Analysis and Credibility Theory
Question 2
The loss severity distribution for a portfolio of household insurance policies is assumed to
be with parameters and .
Next year, losses are expected to increase by 7%, and the insurer has decided to introduce
a policyholder excess of $200.
Calculate the probability that a loss next year is borne entirely by the policyholder.
(4 marks)
Page 4 of 21
Semester 2 & Trimester 3B, 2015
STAT3002 Risk Analysis and Credibility Theory
Question 3
In addition, the insurer paid the retained amount of $30,000 on 6 claims with the excess
being paid by the reinsurer.
The insurer believes that the distribution of gross claim amounts is exponential with mean
.
Page 5 of 21
Semester 2 & Trimester 3B, 2015
STAT3002 Risk Analysis and Credibility Theory
Question 4
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Semester 2 & Trimester 3B, 2015
STAT3002 Risk Analysis and Credibility Theory
Page 7 of 21
Semester 2 & Trimester 3B, 2015
STAT3002 Risk Analysis and Credibility Theory
Question 5
The aggregate claim amount from a portfolio has a compound negative binomial
distribution.
(Total: 13 marks)
Page 8 of 21
Semester 2 & Trimester 3B, 2015
STAT3002 Risk Analysis and Credibility Theory
Page 9 of 21
Semester 2 & Trimester 3B, 2015
STAT3002 Risk Analysis and Credibility Theory
Question 6
An insurance company has a portfolio of policies, for which claims occur as a Poisson
process at a rate of 25 claims per year. The claim amounts follow a generalised (three
parameter) Pareto distribution with parameters and . The insurer
includes a premium loading of 10% in its premiums for this portfolio. You may assume
that the aggregate claim amount for a year is approximately normally distributed.
a. Find , the initial capital required if the insurer insists that the probability of ruin at
the end of the first year can only be 1%.
(8 marks)
b. If the insurer takes out proportional reinsurance, reinsuring 30% of the loss with a
reinsurer which loads its premiums by 45%, find the new level of initial capital
required, and explain how the reinsurance has changed your answer in part (a).
(8 marks)
(Total: 16 marks)
Page 10 of 21
Semester 2 & Trimester 3B, 2015
STAT3002 Risk Analysis and Credibility Theory
Page 11 of 21
Semester 2 & Trimester 3B, 2015
STAT3002 Risk Analysis and Credibility Theory
Page 12 of 21
Semester 2 & Trimester 3B, 2015
STAT3002 Risk Analysis and Credibility Theory
Question 7
One year ago, a company insured a portfolio of 50 independent policies. Under each
policy at most one claim can be made in any year and the probability of a claim being
made in a year, denoted , is the same for all policies. Let denote the total number of
claims occurring in the past year.
(Total: 15 marks)
Page 13 of 21
Semester 2 & Trimester 3B, 2015
STAT3002 Risk Analysis and Credibility Theory
Page 14 of 21
Semester 2 & Trimester 3B, 2015
STAT3002 Risk Analysis and Credibility Theory
Page 15 of 21
Semester 2 & Trimester 3B, 2015
STAT3002 Risk Analysis and Credibility Theory
Question 8
An insurance company has a portfolio with expected claim payments per unit of time
equal to 80. Initial surplus is 200. If the company were to experience claims, , at times
shown below:
then what is the minimum relative security loading such that ruin would not occur during
the time interval ? (Answer to the nearest 0.1).
(8 marks)
Page 16 of 21
Semester 2 & Trimester 3B, 2015
STAT3002 Risk Analysis and Credibility Theory
Question 9
Individual claims have an exponential distribution with mean 100. The company applies
a premium loading. The insurer effects proportional reinsurance with a retained
proportion of . The reinsurer applies a 30% premium loading.
a. Calculate the minimum value of such that the insurer’s net income is greater than
the expected net claims.
(5 marks)
b. Hence, calculate the adjustment coefficient.
(6 marks)
(Total: 11 marks)
Page 17 of 21
Semester 2 & Trimester 3B, 2015
STAT3002 Risk Analysis and Credibility Theory
Page 18 of 21
Semester 2 & Trimester 3B, 2015
STAT3002 Risk Analysis and Credibility Theory
Question 10
The tables below show the cumulative cost of incurred claims and the number of claims
reported each year for a certain cohort of insurance policies.
Development Year
Accident Year 0 1 2
0 288 634 893
1 465 980
2 773
Development Year
Accident Year 0 1 2
0 110 85 55
1 167 113
2 285
Given that the total amount paid in claims to date, relating to accident years 0, 1 and 2, is
$3,750, calculate the outstanding claims reserve using the average cost per claim method.
Indicate any assumptions made.
(11 marks)
Page 19 of 21
Semester 2 & Trimester 3B, 2015
STAT3002 Risk Analysis and Credibility Theory
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Semester 2 & Trimester 3B, 2015
STAT3002 Risk Analysis and Credibility Theory
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