CONFIDENTIAL r CSIJUN 2014/ASC456 UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION COURSE RISK MODELING COURSE CODE ASC456 EXAMINATION JUNE 2014 TIME 3 HOURS INSTRUCTIONS TO CANDIDATES 1 2 3, This question paper consists of ten (10) questions. Answer ALL questions in the Answer Bookiet, Start each answer on a new page, Do not bring any material into the examination room unless permission is given by the invigitator. Please check to make sure that this examination pack consists of i) the Question Paper ii) an Answer Booklet — provided by the Faculty DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO D0 SO This examination paper consists of 4 printed pages (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL 2 CSIJUN 2014/ASC456 QUESTION 4 A decision maker with a net worth of RM8,100 owns a property worth RM1,700. There is a 3/10 chance that the property will be totally lost and a 7/10 chance it will suffer no damage. ‘What is the maximum premium which decision maker could afford to pay for total coverage if he has a utility function u(x) = vz? (9 marks) QUESTION 2 A surplus process has a compound Poisson claims process with | = 2, and an exponential claim amount distribution with mean 2. The premium rate is twice the expected claims rate. Reinsurance is purchased which covers 50% of each claim. The loading for the reinsurer is 80%. Determine the adjustment coefficient for the ceding company. (10 marks) QUESTION 3 Two portfolios of independent insurance policies have the following characteristics: Probability Class gertes! : of Claim Claim Amount (RM) Portfolio A: | S| per Policy i }00 0.40 i 2 1,000 0.20 2 Probability Claim Amount Class Write 7 of Claim | _ ution (RM, Portfolio B: per Policy Variangs i 4,000 0.10 1 2 4,000 0.20 4 The aggregate claims in the portfolio are denoted by S, and Sp, respectively. Determine Var (Ss) / Var (Sa). (10 marks) QUESTION 4 Aggregate claims have a compound distribution such that the number of claims has a negative binomial distribution with parameters r = 7 and p = 2/3. The claim amount distribution is p(x) = 0.05x, x = 1,2,3,4. Calculate the variance of the aggregate claims distribution. (9 marks) (© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL,CONFIDENTIAL 3 CSIJUN 2014/ASC456 QUESTION 5 $ has a compound Poisson distribution with = 10 and claim distribution, p (x): What is fs (2)? (9 marks) QUESTION 6 Suppose the following data are available for a claim process: Claim Numbé i 2 3 4 5 6 7 Arrival Time O7 1.5 1.9 2.4 3.8 43 5.4 ‘Amount 3 2 11 17 6 1 3 c= annual premium =7 u = initial capital = 5 For any t2 5.1, U(t)2 U (5.1) a) Describe S(t) for ts 6. (2 marks) b) Describe U(t) for t< 6. (3 marks) ©) Sketch a graph of S(t). (2 marks) d) Sketch a graph of U(t) (3 marks) e) Does ruin occur? If so what is the time of ruin? (2 marks) f) _ Whatis the maximal aggregate loss, L? (2 marks) 9) Obtain the decomposition L = L, +... + Ly by working with record lows on the surplus graph. (3 marks) QUESTION 7 A surplus process has a compound Poisson claims process. The distribution of claim amounts is gamma with mean 3 and variance 3. Determine E [L,). (6 marks) QUESTION 8 ‘An aggregate claim distribution is compound Poisson with A= 2 and p(1) = 3/4, p(2) = 1/4. ‘What is the net stop — loss reinsurance premium when the deductible is 1? (8 marks) (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL 4 CSIJUN 2014/ASC456 QUESTION 9 You are required to find the outstanding claims reserves for the following run-off triangle, using chain-ladder method. Assume inflation rates over the period 2009-2013 as in Table 1 and interest at 10 percent per annum. The outstanding claim estimated at 31° December 2013 is RM168,987. INFLATION RATES OVER THE PERIOD 2009-2013 4* July 2009 - 1* July 2010 8% 1 July 2010 1 July 2011 9% 4 July 2011 = 1* July 2012 10% 4 July 2012 = 1* July 2013 11% 1™ July 2013 — 31" December2013 12% Future Inflation 14% Table 7 ‘A development run-off triangle paid claims for a portfolio of private motor business is given below as at 31 December 2013: YEAR OF ORIGIN Ei (RM) MADE i" BEVELOPMENT YEAR 7 2009 400,200 | 320,586 542,639 423,694 _| 65,900 2010 492,550 | 500,542 600,222 263,960 2014 444,560 | 450,620 555,120 2012 600,485 | 530,550 2013 753,696 - (16 marks) QUESTION 10 A sample of 100 claims on a general insurer in respect of a certain class of business is given in Table 2. The claim frequency rate is about 0.010. Compute the minimum size of the Portfolio if full credibility (k= 0.1, P = 0.9) is to be assigned to the experience. (Note: 1 = 271). Claim Size (RM) | Number of Claims 0 = 600 5 600_- 1200 25 7200 = 1800 E 35. 1800-2400 25 _ Over 2400 4 Table 2 (6 marks) END OF QUESTION PAPER @ Hak Cipta Universiti Teknologi MARA CONFIDENTIAL,