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Unformatted text preview: Review Notes for Loss Models 1  ACTSC 431/831, FALL 2008 Part 4 – Frequency and Severity with Coverage Modifications Let X be the groundup loss for an insurance policy or an insurer and assume that X is a continuous r.v. with cdf F ( x ), sf S ( x ), and pdf f ( x ). 1. An ordinary deductible of d : With the deductible, the policy pays nothing if X ≤ d and pays X d if X > d . (a) The perpayment random variable Y P is given by Y P = undefined , X ≤ d X d, X > d = X d  X > d. (b) The perloss random variable Y L is given by Y L = , X ≤ d X d, X > d = ( X d ) + = X X ∧ d. (c) The mean of Y P is given by E ( Y P ) = E ( X d  X > d ) = e ( d ) = R ∞ d S ( x ) dx 1 F ( d ) . (d) The mean of Y L is given by E ( Y L ) = E [( X d ) + ] = E ( X ) E ( X ∧ d ) = Z ∞ d S ( x ) dx. (e) The relationship between the moments of Y P and Y L : E Y P k = E Y L k 1 F ( d ) , k = 1 , 2 ,.... (f) The perpayment random variable Y P is also called excess loss variable or left truncated and shifted variable and the perloss random variable Y L is also called left censored and shifted variable. They have been discussed in detail in Part 1. (g) E ( Y L ) and E ( Y P ) are also called expected cost per loss and expected cost per payment , respectively, for the ordinary deductible. (h) See Part 1 for distributions and more results about Y P and Y L . 1 2. A franchise deductible of d : With the deductible, the policy pays nothing if X ≤ d and pays X if X > d . (a) The perpayment random variable Y P f is given by Y P f = undefined , X ≤ d X, X > d = X  X > d. (b) The perloss random variable Y L f is given by Y L f = , X ≤ d, X, X > d. (c) The perpayment random variables Y P and Y P f are conditional positive random variables and defined only for X > d . In particular, Y P > 0 and Y P f > d hold. (d) The perloss random variables Y L and Y L f are mixed nonnegative ran dom variables and defined for all X . In particular, Pr { Y L = 0 } = Pr { Y L f = } = Pr { X ≤ d } = F ( d )....
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This note was uploaded on 02/02/2010 for the course ACTSC 331 taught by Professor David during the Fall '09 term at Waterloo.
 Fall '09
 david

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