Math 523 Final Fall 2001

(1) An insuran e ompany has two lasses of insureds:

Class Prob. of Claim Benet Number of Risks

Smoker .55 1 150
Nonsmoker .4 1 250

The ompany harges ea h smoker a relative se urity loading that is one and a half
times the relative se urity loading harged to ea h nonsmoker. The ompany wants the
total premium olle ted to ex eed the 95th per entile of the aggregate laims distribution.
Determine the smallest relative se urity loading for nonsmokers. (Use the fa t that
P (Z  1:645) = :95 for a standard normal variable.) Give your answer as a per entage.

(2) An aggregate laims variable S is ompound Poisson with a severity variable X

whi h is exponential with parameter 2=5. The mean number of laims is 10. Find
(a) V ar[S ℄, (b) E [e0 1 ℄.
: S

(3) An aggregate laims variable S is ompound Poisson with severity variable X .

The mean number of laims is 1:5. The severity is either 1 or 2, with P (X = 1) = 0:6.
Find the pure premium for stop-loss insuran e on the risk S with dedu tible d = 3:5.

(4) An insuran e ompany has a full redibility standard of 1500 laims for the fre-
quen y of a Poisson laims pro ess. The redibility standard has a onden e interval
of 5%. Suppose the severity variable is uniform on the interval [20; 100℄. Find the on-
den e interval for pure premium of 2000 laims, using the same onden e level as in
the full redibility standard for frequen y.

(5) An auto insuran e ompany divides its lients into two lasses. It lassies 30%
of its lients as Class I and the remainder Class II. It models the laim experien e of its
lients by a ompound Poisson laims variable. For a Class I lient the mean number
of annual laims is 0:8. The severity is Gamma with parameters r = 3;  = 2. For a
Class II lient the mean number of annual laims is 0:1. The severity is Gamma with
parameters r = 2;  = 0:8.
Suppose a lient has made total laims of 2 in the last 5 years. Using Buhlmann redi-
bility, estimate the lient's laim in the next year.

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 (6) Planes arrive at an airport at a Poisson rate of 12 per hour. You have just arrived
at the airport and been told that 18 planes arrived in the past hour.
(a) Find the probability that 5 planes will arrive in the next 20 minutes.
(b) Find the probability that 5 planes arrived in the last 20 minutes.

(7) A new ar dealer is ommen ing business. The dealer has neither assets nor
liabilities. In ex hange for ontinuous payments at the rate of expe ted sales, the ar
dealer re eives ars on demand from the manufa turer. Car sales o ur in a ordan e
with a ompound Poisson pro ess at the rate of 12 ars per month. The pri e of ea h ar
sold is either 20,000 or 30,000, with equal probability. The dealer is in a positive position
when umulative sales ex eed umulative payments to the ar manufa turer.
Given that the dealer will attain a positive position, al ulate the onditional expe ted
value of the rst positive position.

(8) A nervous investor has gotten into the habit of moving his assets from dollars into
sterling and ba k. If the assets are in sterling he waits an exponential time with a mean
of 10 days. He then tosses a oin. If the oin omes down heads he transfers his assets
to dollars. Otherwise he lets his assets remain in sterling. If the assets are in dollars he
waits an exponential time with a mean of 20 days. He then tosses the same oin. If the
oin omes down heads he transfers his assets to sterling. Otherwise he lets his assets
remain in dollars. Suppose that today he has his assets in dollars. Find the probability
that his assets will be in sterling 15 days from now. Assume the probability of the oin
oming down heads is 50%.