Purchase Solution

An insurer sells a very large number of policies to people w

Not what you're looking for?

Ask Custom Question

An insurer sells a very large number of policies to people with the following loss distribution:
$100,000 with probability 0.005
$ 60,000 with probability 0.010
Loss = $ 20,000 with probability 0.020
$ 10,000 with probability 0.05
$ 0 with probability 0.915

a. Calculate the expected claim cost per policy.
b. Assume claims are paid one year after premiums are received and that the interest rate is 6 percent. Calculate the discounted expected claim cost per policy.
c. Assume that the only administrative cost is the cost of processing an application, which equals $100 per policy, and that the fair profit loading is $50. What is the fair premium?

Purchase this Solution
Solution Summary

An insurer sells a very large number of policies to people with the following loss distribution:
$100,000 with probability 0.005
$ 60,000 with probability 0.010
Loss = $ 20,000 with probability 0.020
$ 10,000 with probability 0.05

Solution Preview

An insurer sells a very large number of policies to people with the following loss distribution:
$100,000 with probability 0.005
$ 60,000 with probability 0.010
Loss = $ 20,000 with probability 0.020
$ 10,000 with ...

Purchase this Solution
Free BrainMass Quizzes
Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.

Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

View More Free Quizzes
Related BrainMass Solutions

  • Time Value of Money

    An insurer sells a very large number of policies to people who each have the following identical loss (claims) distribution Loss/claim Probability 100,000 .005 60,000 .010 20,000 .020 10,000 .050 0 .915

  • A risk averse agent offered actuarially fair insurance

    For example, a decision maker having a utility curve of w^0.5 is a risk averse person where w is the level of wealth. Suppose, the person is given two choices 1. To take an amount of $100 for sure 2.

  • Insurance Policies and Individual Consumers

    Sincerely, Anna Liza Gaspar Insurance Policies According to the online version of the Encyclopaedia Britannica (2010), insurance is a a "[contract] hat, by redistributing risk among a large number of people, reduces losses from accidents incurred

  • Liability Insurance Policy

    An insured has the following four liability insurance policies: $300,000 with insurer A, $300,000 with insurer B, $700,000 with insurer C, and $900,000 with insurer D. Each policy apportions losses using the equal shares method.

  • Effects of stating wrong or false facts to insurer

    It is a material fact and very important for the insurer to know the true age. The contract of insurance is a contract "UBERRIMAE FIDIE" that is one based on good faith.

  • When the insured and the insurer disagree on whether a loss

    Many times, the insured and the insurer do not agree because the policy is the minimum absolute coverage, or is a policy that is cheap considered to the other policies.

  • International Accounting Standard Board & IFRS

    Thus the primary objective of the Board to bring in practice the best accounting and auditing policies to manage the financial of the world at large.

  • Financial and Economic Basics

    For each method, the healthcare professionals follow different rules based on the policies of insurer and the paying ability of the customers by that customers would be able to pay the health premium continuously (Measom, 2012).

  • ethics and insurance

    Nonetheless, an insurer will sometimes attempt to avoid payment, notwithstanding the passage of the time period specified in an incontestability clause. Consider the following example.

View More Related Solutions