Page 87 - ic92 actuarial

Foundations of Casualty Actuarial Science

Pr = probability
N = number of possible occurrences
k = number of occurrences per year
p = the expected probability of one occurrence

A complete table of values allow the insurer to estimate
the probability of ruin by adding up all the probabilities
for number of occurrences > = 14. The insurer may
also wish to consider using a utility theory approach here,
once the subjective probabilities have been determined.
For e,g, writing 100 policies may not be worth the
administrative burden of the state filings.

The insurer's utility function should reflect this. In realistic
situations, the size of loss also varies. So the subjective
probability of loss can be determined by computer
simulation with probability distributions for the number
of occurrences and size of loss.

Q18. Write short notes on -

(a) Exposure - The term Exposure sometimes is used
to refer to the state of being subject to loss. It

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