(a)Claim sizes in a portfolio of an insurance company for the present year appearto follow a Pareto distribution with mean claim size of £1500 and standarddeviation of £3500. It is expected that, next year, all claims will be inflated by10% and the company's retention under an excess of loss treaty (currently£9000) will be increased by the same percentage. In addition, a policyexcess of £150 will also be introduced. Estimate the following quantities.(i)(ii)(iii)(iv)(v)The proportion of incidents in which the loss is borne entirely by thepolicy holder.The proportion of incidents which will involve the direct insurer as wellas the reinsurer.The average loss met personally by the policy holders.The average amount paid by the direct insurer in respect of all losses.The average amount paid by the reinsurer in respect of claims whichinvolve a reinsurance payment.

Given data in the questionmean claim size = £1500 Standard deviation = £3500 Inflation rate = 10%…

Answered: i) The proportion of incidents in which…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 23P

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