an insurance company\'s losses of a particular type per year are to a reasonable
ID: 2630395 • Letter: A
Question
an insurance company's losses of a particular type per year are to a reasonable approximation normally distributed with a mean of $150 million and a standard deviation of $50 million. Assum the risk taken on by the insurance company are entriely nonsystematic. The one year risk free rate is 5% per annum with annual compounding. Estimate the cost of the following
a) A contract that will pay in one year time 60% of the insurance company's costs on a pro rata analysis
b) A contract thay pays $100 million in one year's time if losses exceed $200 million
Explanation / Answer
70 million
54 million
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