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IAI Actuarial Core Principles · Risk Modelling and Survival Analysis · Compound distributions and their applications in risk modelling

Claim numbers N have mean 10. Claim sizes are iid with mean Rs 8,000, independent of N. An insurer buys no reinsurance and sets its premium at 120% of expected aggregate claims. What is the premium?

Expected aggregate claims equal E[N] x E[X] = 10 x 8,000 = Rs 80,000. Applying the 20% loading gives a premium of 1.2 x 80,000 = Rs 96,000.

  1. ARs 96,000Correct
  2. BRs 80,000
  3. CRs 100,000
  4. DRs 9,600
  5. Rs 1,20,000

Explanation

E[S] = E[N]E[X] = 10 x 8,000 = 80,000. Premium = 1.2 x 80,000 = 96,000. Rs 80,000 omits the loading.

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