Exam P Practice Problem 68 – Large Claim Studies

Problem 68-A

An insurance company has a large block of auto insurance policies such that the claim sizes (in thousands) from a policy in this block are modeled by the random variable X. The following is the probability density function of X.

      \displaystyle f(x)=\frac{3}{16000} \ (400-x^2) \ \ \ \ \ \ \ 0<x<20

An actuary is hired to study the large claims arising from these auto insurance policies. In this study, any claim size over ten thousands is considered a large claim.

What is the mean size of the claims studied by this actuary?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 7,500

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 13,500

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 14,219

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 15,000

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 17,500

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Problem 68-B

An insurance company has a large block of auto insurance policies such that the claim sizes (in thousands) from a policy in this block are modeled by the random variable X. The following is the probability density function of X.

      \displaystyle f(x)=\frac{625}{312 \ x^3}  \ \ \ \ \ \ \ 1<x<25

An actuary is hired to study the large claims arising from these auto insurance policies. In this study, any claim size over five thousands is considered a large claim.

What is the mean size of the claims studied by this actuary?

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      \displaystyle (A) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1,923

      \displaystyle (B) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 6,923

      \displaystyle (C) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 5,321

      \displaystyle (D) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 8,333

      \displaystyle (E) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 15,000

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Answers

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