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(I attached my excel file to this. You actually did question 1 for me. Question # 2 below pertains.. 1 answer below » (I attached my excel file to this. You actually did question 1 for me. Question # 2 below pertains to the excel file.) Question 2. Redo problem 1, but include the expected cost of loss adjustment expenses (the cost of processing claims) assuming that loss adjustment expenses equal 10 percent of losses and are paid at the same time that claims are paid. 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 View complete question » (I attached my excel file to this. You actually did question 1 for me. Question # 2 below pertains to the excel file.) Question 2. Redo problem 1, but include the expected cost of loss adjustment expenses (the cost of processing claims) assuming that loss adjustment expenses equal 10 percent of losses and are paid at the same time that claims are paid. 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. Expected Loss $100,000 $60,000 $20,000 $10,000 $0 Probablity 0.005 0.01 0.02 0.05 0.915 Probable Loss $500 $600 $400 $500 $0 Expected Claim cost 1 2 3 4 5 $2,000 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 1 2 3 4 5 Expected Loss $100,000 $60,000 $20,000 $10,000 $0 Probablity Probable Loss 0.005 0.01 0.02 0.05 0.915 $500 $600 $400 $500 $0 Expected Claim cost Discounted Expected Claim Cost 2000 1886.79 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? 1 2 3 4 5 Expected Loss $100,000 $60,000 $20,000 $10,000 $0 Probablity 0.005 0.01 0.02 0.05 0.915 Probable Loss $500 $600 $400 $500 $0 Expected Claim cost $2,000.00 Discounted Expected Claim Cost $1,886.79 Computation of Fair Premium: $1,986.79 Attachments: Q.-Attachment….xls View less » Sep 09 2015 04:09 PM
