Amount of losses in a given time period is an example of a______.
Item, person, thing of value exposed to a loss.
Ex. What formula would you use tocalculate p* for a group of "similar drivers"?
sum of all losses# of drivers
What was the expected loss for the whole class (car accidents)?
How to calculate P* for a single exposure unit. (ex p* for a single driver)
sum of all losses
# of years
A premium paid per unit of coverage to insure a particular risk. aka "price for a product"
What are the basis of insurance company pricing decisions?
What two things make up a gross premium?
1 admin costs
2 losses/claims (interchangable claims)
What is the formula for gross premium?
pure premium(P*)+risk charge+administrative costs
Amount of portion of the gross premium which is calculated as being sufficient to pay for losses only.(P*)
To calculate pure premium what must be estimated in advance?
P*. (and that estimate may be wrong)
(break even,profit or loss)Al=EL
(break even,profit or loss)AL>EL
(break even,profit or loss)AL<EL
Reflects the estimation risk of the insurer. It is the extra amount charged by the insurer to represent the estimation risk.
What influences the size/magnitude of the risk charge?(2)
The accuracy of the estimate of P*
The level of confidence in the estimate of P*.
What do insurers have lots of past information of to help estimate P* accurately?
There is a lot of data to help predict P* for property,auto,and life insurance.
When estimation risk is low insurers are?
very confident in the estimate of P*
and there is a very low need for a risk charge
What are some examples of risks that do not have a lot of past information, and therefore have a high estimation risk.
terrorism,event risk, cyber risk
When there is a lot of estimation risk there is:
A high need for a risk charge because P* is really an educated guess
What is an example of a company that deals primarily with event risk?
LLoyds of london
_____ varies inversely with the level of confidence in the estimate of P*
What are some examples of administrative costs?
stake premium taxes
mktg and advertising
wages and compensation for employees
What is another term for administrative costs?
two events that cannot occur at the same time.
A variable whose outcome or value depends on some chance event.
all outcomes equally as likely
All outcomes are not equally likely
Table/graph that indicates for each outcome of a random variable the probability of that particular outcome.
another word for the mean is the
how to calculate the mean
What are some measures of dispersion
3. coefficient of variation
What are the 2 things needed to calculate variance?
1.outcomes of a random variable
2.prob of the outcomes
std deviation formula
take the square root of the variance
what are the 4 columns needed to calculate variance within a table
coefficient of variation
coefficient of variation
can be defined as how much risk is present
who faces the most risk
and can you quantify the risk
When do you need to calculate when you use the means are different?
the coefficient of variation
expected value of frequency(gotten by using a probability distribution)
expected value of severity
total dollar losses
total # losses
expected loss per___ formula
total dollar lossestotal # of ______.
a priori probability
deduce in advance based on the nature of the event.
(ex outcome of tossing a fair coin once)
What are the 3 assumptions in a priori probability
1. all possible outcomes are known
2. all outcomes are mutually exclusive
3. all outcomes are equally likely
Are statistical or a priori probabilities more common?
looking at past information to estimate
maximum probably loss
largest loss that could occur with a very high probability
probability based on theoretical principles rather than on actual experience.
based on actual experience through historical or from the observation of facts.
the probability that any one of two or more events will occur within a given period.
The unit in which the exposure is measured, such as gross sales or payroll.
Units of exposure that face approximately the same expected severity and frequency of loss.
The unit in which the exposure is measured such as gross sales or payroll
the total value exposed to loss at any one location from any one event.
The transfer of insurance risk from one insurer to another through a contractual agreement under which one insurer (the reinsurer) agrees, in return for a reinsurance premium to indemnify another (the primary insurer) for some or all of the financial consequences of certain loss exposures covered by the primary's insurance policies.