hw-5 - 5 The insurer will use the expected loss as a...

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1. X Probability (x) 0 .27 1 .21
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2 .24 3 .28 1.00 A. Total number of one random variable Total number variables There are thirty two 0’s and 120 variables in total, therefore the probability distribution for 0 is 32/120= .27 = 27% B. The probability for Mount elsewhere to have X Liability suits through out ten years is as follows: X Probability (x) 0 27% 1 21% 2 24% 3 28% 100% 2. The Random Variables in the distribution are 0, 1, 2, and 3. 3. Probability Statistics is used in the distribution because it measures the central tendency. 4. The mean of the distribution is 1.5 (0+1+2+3= 6) = 6/4= 1.5
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Unformatted text preview: 5. The insurer will use the expected loss as a component of the Gross Premium which is based upon the history of the number of liability suits given for ten years. 6. If KIA uses the answer to number 5 to calculate a part of the gross income, KIA would need a relatively low risk charge. Low risk charge is the result from having lots of data, which we’ve been given a history of data for ten years. The more data, the more confidence in the estimate of expected loss and the closer to accuracy....
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