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    Isaac Isiche
    The document discusses three questions regarding general insurance. Question 1 analyzes the expected profit and probability of profit less than 2000 for an insurance company under three reinsurance arrangements: no reinsurance, individual excess of loss with retention 60 and premium loading 55%, and proportional reinsurance with retention 75% and premium loading 45%. Question 2 examines the claim behavior and premium costs for a policy with three no-claim discount levels (0%, 25%, 50%) based on whether the policyholder has an accident and chooses to make a claim. Question 3 asks to write the transition matrix and calculate the average equilibrium premium payment for the multi-level no-claim discount policy discussed in Question 2.

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    Assignments 2

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    Isaac Isiche
    8 views2 pages
    The document discusses three questions regarding general insurance. Question 1 analyzes the expected profit and probability of profit less than 2000 for an insurance company under three reinsurance arrangements: no reinsurance, individual excess of loss with retention 60 and premium loading 55%, and proportional reinsurance with retention 75% and premium loading 45%. Question 2 examines the claim behavior and premium costs for a policy with three no-claim discount levels (0%, 25%, 50%) based on whether the policyholder has an accident and chooses to make a claim. Question 3 asks to write the transition matrix and calculate the average equilibrium premium payment for the multi-level no-claim discount policy discussed in Question 2.

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    The document discusses three questions regarding general insurance. Question 1 analyzes the expected profit and probability of profit less than 2000 for an insurance company under three reinsurance arrangements: no reinsurance, individual excess of loss with retention 60 and premium loading 55%, and proportional reinsurance with retention 75% and premium loading 45%. Question 2 examines the claim behavior and premium costs for a policy with three no-claim discount levels (0%, 25%, 50%) based on whether the policyholder has an accident and chooses to make a claim. Question 3 asks to write the transition matrix and calculate the average equilibrium premium payment for the multi-level no-claim discount policy discussed in Question 2.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    8 views2 pages

    Assignments 2

    Uploaded by

    Isaac Isiche
    The document discusses three questions regarding general insurance. Question 1 analyzes the expected profit and probability of profit less than 2000 for an insurance company under three reinsurance arrangements: no reinsurance, individual excess of loss with retention 60 and premium loading 55%, and proportional reinsurance with retention 75% and premium loading 45%. Question 2 examines the claim behavior and premium costs for a policy with three no-claim discount levels (0%, 25%, 50%) based on whether the policyholder has an accident and chooses to make a claim. Question 3 asks to write the transition matrix and calculate the average equilibrium premium payment for the multi-level no-claim discount policy discussed in Question 2.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    MACHAKOS UNIVERSITY

    SAC 308 : GENERAL INSURANCE

    Que1

    The number of claims on a portfolio of insurance policies has a Poisson distribution with
    mean 200. Individual claim amounts are exponentially distributed with mean 40. The
    insurance company calculates premiums using a premium loading of 40% and is
    considering entering into one of the following re-insurance arrangements:

    (A) No reinsurance.

    (B) Individual excess of loss insurance with retention 60 with a reinsurance company that
    calculates premiums using a premium loading of 55%.

    (C) Proportional reinsurance with retention 75% with a reinsurance company that
    calculates premiums using a premium loading of 45%.

    (i) Find the insurance company’s expected profit under each arrangement. (8
    marks)

    (ii) Find the probability that the insurer makes a profit of less than 2000 under each of the
    arrangements using a normal approximation. (12 marks)
    Qué 2

    The NCD scale policy for an insurance company is:

    Level 0 0%
    Level 1 25%
    Level 2 50%

    The premium at the Level 0 is £800. The probability that a policyholder has an accident in
    a year is 0.2, and it is assumed that a policyholder does not have more than one accident
    each year.

    In the event of a claim free year the policyholder moves to the next higher level of
    discount in the coming year or remains at Level 2.

    Page 1
    In the event of a claim the policyholder moves to the next lower level of discount in the
    coming year or remains at Level 0.

    Following an accident the policyholder decides whether or not to make a claim based on
    the claim size and the amount of premiums over the period of the next 2 policy years,
    assuming no more claims are made.

    (i) For each discount level, find the minimum claim amount for which the policyholder
    will make a claim. (4 marks)

    (ii) Assuming that the cost of repair for each accident has an exponential distribution
    with mean £600, calculate the probability that a policyholder makes a claim at each
    level of
    discount. (8 marks)

    (iii) Write down the transition matrix and calculate the average premium payment for a
    year when the system has reached the equilibrium. (8
    marks)

    Page 2

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