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AAdmin
Jun 01'22

Exercise

Year 1 ground-up losses have an exponential distribution with mean $1,250. Inflation of 5% impacts all claims from year 1 to year 2. The policy has a deductible of $400 in effect during years 1 and 2. If x1 denotes the probability that non-zero payments exceed $500 in year 1 and x2 denotes the probability that non-zero payments exceed $500 in year 2, determine the ratio x2/x1.

  1. [0.5, 0.7]
  2. [0.98, 1.03]
  3. [1.1, 1.2]
  4. [1.3, 1.4]
  5. 1.5+
AAdmin
Jun 01'22

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