You Are Given The Following Information About An Invertible ARMA Time-Series Model: 0 4 0 2 3 4 - , ,, ,..

May, 2001 Society of Actuaries
**BEGINNING OF EXAMINATION**
1. You are given the following information about an invertible ARMA time-series model:
ρ1 = −0.4
ρ k = 0, k = 2, 3, 4,...
Determine θ 1.
(A) 0.2
(B) 0.3
(C) 0.4
(D) 0.5
(E) 0.6
Course 4: May 2001 -1- GO ON TO NEXT PAGE

2. You are given:
(i) Annual claim counts follow a Poisson distribution with mean λ.
(ii) The parameter λ has a prior distribution with probability density function:
bg 1 −λ
f λ = e 3, λ >0
3
Two claims were observed during the first year.
Determine the variance of the posterior distribution of λ.
(A) 9/16
(B) 27/16
(C) 9/4
(D) 16/3
(E) 27/4

3-4. Use the following information for questions 3 and 4.
You are given the following times of first claim for five randomly selected auto insurance
policies observed from time t = 0:
1 2 3 4 5
3. Calculate the kurtosis of this sample.
(A) 0.0
(B) 0.5
(C) 1.7
(D) 3.4
(E) 6.8

3-4. (Repeated for convenience) Use the following information for questions 3 and 4.
You are given the following times of first claim for five randomly selected auto insurance
policies observed from time t = 0:
1 2 3 4 5
4. You are later told that one of the five times given is actually the time of policy lapse, but you
are not told which one.
The smallest Product-Limit estimate of S(4), the probability that the first claim occurs after
time 4, would result if which of the given times arose from the lapsed policy?
(A) 1
(B) 2
(C) 3
(D) 4
(E) 5

5. A professor ran an experiment in three sections of a psychology course to show that the more
digits in a number, the more difficult it is to remember. The following variables were used in
a multiple regression:
X2 = number of digits in the number

X3 = 1 if student was in section 1, 0 otherwise
X4 = 1 if student was in section 2, 0 otherwise
Y = percentage of students correctly remembering the number
You are given:
(i) A total of 42 students participated in the study.
(ii) The regression equation Y = β1 + β 2 X 2 + β 3 X 22 + β 4 X 3 + β 5 X 4 + ε was fit to the data

and resulted in R 2 = 0.940.
(iii) A second regression equation Y = γ 1 + γ 2 X 2 + γ 3 X 22 + ε * was fit to the data and

resulted in R 2 = 0.915.
Determine the va lue of the F statistic used to test whether class section is a significant
variable.
(A) 5.4
(B) 7.3
(C) 7.7
(D) 7.9
(E) 8.3

6. You are given:
(i) The full credibility standard is 100 expected claims.
(ii) The square-root rule is used for partial credibility.
You approximate the partial credibility formula with a Bühlmann credibility formula by
selecting a Bühlmann k value that matches the partial credibility formula when 25 claims are
expected.
Determine the credibility factor for the Bühlmann credibility formula when 100 claims are
expected.
(A) 0.44
(B) 0.50
(C) 0.80
(D) 0.95
(E) 1.00

7. You are given a sample of losses from an exponential distribution. However, if a loss is 1000
or greater, it is reported as 1000. The summarized sample is:
Reported Loss Number Total Amount

Less than 1000 62 28,140
1000 38 38,000
Total 100 66,140
Determine the maximum likelihood estimate of θ , the mean of the exponential distribution.
(A) Less than 650
(B) At least 650, but less than 850
(C) At least 850, but less than 1050
(D) At least 1050, but less than 1250
(E) At least 1250

8. For a mortality study conducted on three individuals observed from time zero, you are given:
(i) The reference hazard rate, θ , for each individual is constant over time.
(ii)
Person Time of Death θ
1 7 0.25
2 11 0.15
3 14 0.50
b g
Determine the estimate of B 14 , the cumulative relative excess mortality at time 14.
(A) Less than 1.0
(B) At least 1.0, but less than 2.0
(C) At least 2.0, but less than 3.0
(D) At least 3.0, but less than 4.0
(E) At least 4.0

9. A Dickey-Fuller unit root test was performed on 100 observations of each of three price series
by estimating the unrestricted regression
b g
Yt − Yt −1 = α + β t + ρ − 1 Yt −1 ,
and then the restricted regression
Yt − Yt −1 = α .
You are given:
(i)
Price Error Sum of Squares (ESS)
Series Unrestricted Restricted
I 3233.8 3552.2
II 1131.8 1300.5
III 211.1 237.0
(ii) The critical value at the 0.10 significance level for the F distribution calculated by
Dickey and Fuller is 5.47.
For which series do you reject at the 0.10 significance level the hypothesis of a random walk?
(A) None
(B) Series I and II only
(C) Series I and III only
(D) Series II and III only
(E) Series I, II and III

(i) The claim count and claim size distributions for risks of type A are:
Number of
Probabilities Claim Size Probabilities
Claims
0 4/9 500 1/3
1 4/9 1235 2/3
2 1/9
(ii) The claim count and claim size distributions for risks of type B are:
Number of
Claims
0 1/9 250 2/3
1 4/9 328 1/3
2 4/9
(iii) Risks are equally likely to be type A or type B.
(iv) Claim counts and claim sizes are independent within each risk type.
(v) The variance of the total losses is 296,962.
A randomly selected risk is observed to have total annual losses of 500.
10. Determine the Bayesian premium for the next year for this same risk.
(A) 493
(B) 500
(C) 510
(D) 513
(E) 514
Course 4: May 2001 - 10 - GO ON TO NEXT PAGE

(i) The claim count and claim size distributions for risks of type A are:
Number of
Claims
0 4/9 500 1/3
1 4/9 1235 2/3
2 1/9
(ii) The claim count and claim size distributions for risks of type B are:
Number of
Claims
0 1/9 250 2/3
1 4/9 328 1/3
2 4/9
(iii) Risks are equally likely to be type A or type B.
(iv) Claim counts and claim sizes are independent within each risk type.
(v) The variance of the total losses is 296,962.
A randomly selected risk is observed to have total annual losses of 500.
11. Determine the Bühlmann credibility premium for the next year for this same risk.
(A) 493
(B) 500
(C) 510
(D) 513
(E) 514

12. You are given the following random observations:
0.1 0.2 0.5 1.0 1.3
You test whether the sample comes from a distribution with probability density function:
b g b1 +2xg ,
f x = 3
x>0
Calculate the Kolmogorov-Smirnov statistic.
(A) 0.01
(B) 0.06
(C) 0.12
(D) 0.17
(E) 0.19

13. Applied to the model Yi = β 1 + β 2 X 2i + β 3 X3i + ε i , the method of least squares implies:
∑ cY − Y hc X h
− X 2 = β$ 2 ∑ X 2i − X 2 c h + β$ ∑ c X hc h
2
i 2i 3 2i − X 2 X 3i − X 3
∑ cY − Y hc X h c
− X 3 = β$ 2 ∑ X 2i − X 2 X 3i − X 3 + β$ 3 ∑ X 3i − X 3 hc h c h2
i 3i
You are given:
(i) rYX2 =
∑ cY − Y hc X − X h
i 2i 2
= 0.4
∑ cY − Y h ∑ c X − X h
2 2
i 2i 2
(ii) rYX3 =
∑ cY − Y hc X − X h
i 3i 3
= 0.9
∑ cY − Y h ∑ c X − X h
2 2
i 3i 3
(iii) rX 2 X3 =
∑ c X − X hc X − X h
2i 2 3i 3
= 0.6
∑cX − X h ∑cX − X h
2 2
2i 2 3i 3
Determine the value of β$ *2 , the standardized coefficient associated with X 2 .
(A) –0.7
(B) –0.2
(C) 0.3
(D) 0.8
(E) 1.0

For a mortality study with right-censored data, you are given:
ti di Yi
b
di
Yi Yi − di g bg
S$ ti z
ti
∞
bg
S$ t dt
1 15 100 0.0018 0.8500 14.424

8 20 65 0.0068 0.5885 8.474
17 13 40 0.0120 0.3972 3.178
25 31 31 --- 0.0000 0.000
14. b g
Calculate σ H 20 , the Aalen estimate of the standard deviation of the Nelson-Aalen estimator
of the cumulative hazard function at time 20.
(A) Less than 0.05
(E) At least 0.20

For a mortality study with right-censored data, you are given:
ti di Yi
b
di
Yi Yi − di g bg
S$ ti z
ti
∞
bg
S$ t dt
1 15 100 0.0018 0.8500 14.424

8 20 65 0.0068 0.5885 8.474
17 13 40 0.0120 0.3972 3.178
25 31 31 --- 0.0000 0.000
15. Determine the symmetric 95% confidence interval for the mean survival time.
(A) (13.5, 17.4)
(B) (13.7, 17.2)
(C) (13.9, 17.0)
(D) (14.1, 16.8)
(E) (14.3, 16.6)

16. A sample of ten losses has the following statistics:
10 10
∑ X −2 = 0.00033674 ∑ X 0.5 = 488.97
i =1 i =1
10 10
∑ X −1 = 0.023999 ∑ X = 31,939
i =1 i=1
10 10
∑ X −0.5 = 0.34445 ∑ X 2 = 211,498,983
i =1 i =1
You assume that the losses come from a Weibull distribution with τ = 0.5 .
Determine the maximum likelihood estimate of the Weibull parameter θ .
(A) Less than 500
(B) At least 500, but less than 1500
(C) At least 1500, but less than 2500
(D) At least 2500, but less than 3500
(E) At least 3500

17. You are using an ARMA(1,1) model to represent a time series of 100 observations.
You have determined:
yˆ 100 (1) = 197.0
σ$ 2ε = 1.0
Later, you observe that y101 is 188.0.
Determine the updated estimate of σ 2ε .
(A) 1.0
(B) 1.2
(C) 1.4
(D) 1.6
(E) 1.8

18. You are given:
(i) An individual automobile insured has annual claim frequencies that follow a Poisson
distribution with mean λ .
(ii) An actuary’s prior distribution for the parameter λ has probability density function:
bg b g b g 15 e
π λ = 0.5 5e−5 λ + 0.5 −λ 5
.
(iii) In the first policy year, no claims were observed for the insured.
Determine the expected number of claims in the second policy year.
(A) 0.3
(B) 0.4
(C) 0.5
(D) 0.6
(E) 0.7

During a one-year period, the number of accidents per day was distributed as follows:
Number of
Days
Accidents
0 209
1 111
2 33
3 7
4 3
5 2
19. You use a chi-square test to measure the fit of a Poisson distribution with mean 0.60.
The minimum expected number of observations in any group should be 5. The maximum
possible number of groups should be used.
Determine the chi-square statistic.
(A) 1
(B) 3
(C) 10
(D) 13
(E) 32

During a one-year period, the number of accidents per day was distributed as follows:
Number of
Days
Accidents
0 209
1 111
2 33
3 7
4 3
5 2
20. For these data, the maximum likelihood estimate for the Poisson distribution is λ$ = 0.60 , and
for the negative binomial distribution, it is r$ = 2.9 and β$ = 0.21 .
The Poisson has a nega tive loglikelihood value of 385.9, and the negative binomial has a
negative loglikelihood value of 382.4.
Determine the likelihood ratio test statistic, treating the Poisson distribution as the null
hypothesis.
(A) −1
(B) 1
(C) 3
(D) 5
(E) 7

21. Twenty independent loss ratios Y1 , Y2 ,..., Y20 are described by the model
Yt = α + ε t
where:
b g
Var ε t = 0.4, t = 1, 2,..., 8
Var b ε g = 0.6, t = 9,10,..., 20
t
You are given:
Y1 =
1
8
b
Y1 + Y2 + ... + Y8 g
Y2 =
1
b
Y + Y + ... + Y20
12 9 10
g
Determine the weighted least squares estimator of α in terms of Y1 and Y2 .
(A) 0.3Y1 + 0.7 Y2
(B) 0.4 Y1 + 0.6 Y2
(C) 0.5 Y1 + 0.5 Y2
(D) 0.6Y1 + 0.4Y2
(E) 0.7 Y1 + 0.3 Y2

22. For a mortality study, you are given:
(i) Ten adults were observed beginning at age 50.
(ii) Four deaths were recorded during the study at ages 52, 55, 58 and 60. The six
survivors exited the study at age 60.
(iii) H 0 is a hypothesized cumulative hazard function with values as follows:
t H0 t bg
50 0.270
51 0.280
52 0.290
53 0.310
54 0.330
55 0.350
56 0.370
57 0.390
58 0.410
59 0.435
60 0.465
Determine the result of the one-sample log-rank test used to test whether the true cumulative
hazard function differs from H 0 .
(A) Reject at the 0.005 significance level
(B) Reject at the 0.01 significance level, but not at the 0.005 level
(C) Reject at the 0.025 significance level, but not at the 0.01 level
(D) Reject at the 0.05 significance level, but not at the 0.025 level
(E) Do not reject at the 0.05 significance level

23. You are given the following information about a single risk:
(i) The risk has m exposures in each year.
(ii) The risk is observed for n years.
(iii) The variance of the hypothetical means is a.
v
(iv) The expected value of the annual process variance is w + .
m
Determine the limit of the Bühlmann-Straub credibility factor as m approaches infinity.
n
(A)
n2 w
n+
a
n
(B)
w
n+
a
n
(C)
v
n+
a
n
(D)
w+v
n+
a
(E) 1

24. Your claims manager has asserted that a procedural change in the claims department
implemented on January 1, 1997 immediately reduced claim severity by 20 percent. You use
a multiple regression model to test this assertion.
For the dependent variable, Y, you calcula te the average claim costs on closed claims by year
during 1990-99.
You define the variable X as the year.
You also define a variable D as:
D=
RS0 for years 1996 and prior
T1 for years 1997 and later
Assuming a lognormal error component and constant inflation over the entire period, which of
the following models would be used to test the assertion?
(A) Y = α 1D β1X ε
(B) Y = α 1α D2 β1X ε
(C) Y = α 1β1X β 2XD ε
(D) Y = α 1α D2 β1X β 2XD ε
(E) Y = α 1α D2 X β1 ε

25. You have modeled eight loss ratios as Yt = α + β t + ε t , t = 1,2,K,8 , where Yt is the loss ratio
for year t and ε t is an error term.
You have determined:
LMα$ OP = L0.50O
MNβ$ PQ MN0.02PQ
F Lα$ OI = L 0.00055 − 0.00010 O
Var GH MMNβ$ PPQJK MN− 0.00010 0.00002PQ
Estimate the standard deviation of the forecast for year 10, Y$10 = α$ + β$ ⋅ 10 , using the delta
method.
(A) Less than 0.01
(E) At least 0.04

26. You are given the following claims settlement activity from the past three years for a book of
auto claims:
Number Of Claims Settled

Year Year Settled
Reported 1997 1998 1999
1997 6 3 1
1998 5 2
1999 4
Let L = (Year Settled !Year Reported) be a random variable describing the time lag in settling
a claim.
Calculate Pr L = 1 L < 3 by first estimating the survival function for right-truncated data.
(A) 0.28
(B) 0.29
(C) 0.30
(D) 0.31
(E) 0.32

27. Based on 4 years of monthly sales data, you are given:
(i)
Original Series 12-month Average
t yt ~
yt
June 1993 825 843
June 1994 784 804
June 1995 710 740
June 1996 918 905
12
(ii) ∑ ~z i = 119607
.
i=1
Calculate the seasonally adjusted sales for June 1996.
(A) 892
(B) 904
(C) 915
(D) 919
(E) 932

28. Two eight-sided dice, A and B, are used to determine the number of claims for an insured.
The faces of each die are marked with either 0 or 1, representing the number of claims for that
insured for the year.
Die Pr(Claims = 0) Pr(Claims = 1)

A 1 3
4 4
B 3 1
4 4
Two spinners, X and Y, are used to determine claim cost. Spinner X has two areas marked 12
and c. Spinner Y has only one area marked 12.
Spinner Pr(Cost = 12) Pr(Cost = c)

X 1 1
2 2
Y 1 0
To determine the losses for the year, a die is randomly selected from A and B and rolled. If a
claim occurs, a spinner is randomly selected from X and Y and spun. For subsequent years,
the same die and spinner are used to determine losses.
Losses for the first year are 12.
Based upon the results of the first year, you determine that the expected losses for the second
year are 10.
Calculate c.
(A) 4
(B) 8
(C) 12
(D) 24
(E) 36

29. You are given:
Claim History Ranked Claim History

Group A Group B Number of
Year Number of Claims Number of Claims Group Claims
1989 27 21 A 9
1990 14 18 A 10
1991 15 20 B 11
1992 12 16 B 11
1993 13 21 A 12
1994 10 12 A 12
1995 9 11 B 12
1996 12 11 A 13
1997 13 19 A 13
1998 18 24 A 14
A 15
B 16
A 18
B 18
B 19
bg FG n + m + 1IJ B 20
VarH0 R = n m
H 12 K B
B
21
21
B 24
A 27
You perform a two-tailed rank-sum test of the hypothesis that the number of claims per year
for Group A and Group B come from the same distribution. You use the classical approach
for approximating the p-value.
Determine p.
(A) 0.065
(B) 0.081
(C) 0.131
(D) 0.162
(E) 0.186

30. The following are ten ground-up losses observed in 1999:
18 78 125 168 250 313 410 540 677 1100
You are given:
(i) The sum of the ten losses equals 3679.
(ii) Losses are modeled using an exponential distribution with maximum likelihood
estimation.
(iii) 5% inflation is expected in 2000 and 2001.
(iv) All policies written in 2001 have an ordinary deductible of 100 and a policy limit of
1000. (The maximum payment per loss is 900.)
Determine the expected amount paid per loss in 2001.
(A) 256
(B) 271
(C) 283
(D) 306
(E) 371

31. For a study in which you are performing a proportional hazards regression using the Cox
model, you are given:
(i) bg d i
h( t Z) = h0 t exp β t Z
(ii) The covariate vectors for the three individuals studied, in the order in which they die,
are as follows:
F 1I F 0I F 0I
= G 0J = G 1J = G 0J
Z1
GH 0JK Z2
GH 0JK Z3
GH 1JK
Determine the partial likelihood.
e β1+ β 2 +β 3
(A)
eeβ1
je
+ e β2 + e β3 e β2 + e β3 e β3 j
e β1 + eβ 2 + eβ 3
(B)
eeβ1
je
+ e β2 + e β3 e β2 + eβ 3 eβ 3 j
eβ1 +β 2 + β3
(C)
eeβ1+β 2 +β3
jee β1+β 2
je
β1
e β1+ β 2 +β 3
(D)
eeβ1+β 2 +β3
jee β2 +β3
je β3
e β1 + eβ 2 + e β3
(E)
eeβ1+β 2 +β3
jee β2 +β3
je β3

32. You are given the following experience for two insured groups:
Year
Group
1 2 3 Total
Number of members 8 12 5 25
1
Average loss per member 96 91 113 97
Number of members 25 30 20 75
2
Average loss per member 113 111 116 113
Number of members 100
Total
Average loss per member 109
2 3
∑ ∑ mij d xij − x i i
2
= 2020
i =1 j=1
∑ mi bx i − x g
2
2
= 4800
i =1
Determine the nonparametric Empirical Bayes credibility premium for group 1, using the
method that preserves total losses.
(A) 98
(B) 99
(C) 101
(D) 103
(E) 104

33. An actuary uses annual premium income from the previous year as the independent variable
and loss ratio in the current year as the dependent variable in a two-variable linear regression
model. Using 20 years of data, the actuary estimates the model slope coefficient with the
ordinary least-squares estimator β$ and does not take into account that the error terms in the
model follow an AR(1) model with first-order autocorrelation coefficient ρ > 0 .
Which of the following statements is false?
(A) The estimator β$ is biased.
(B) The estimator β$ is consistent.
(C) The R2 probably gives an overly optimistic picture of the success of the regression.
(D) The estimator of the standard error of β$ is biased downward.
(E) Use of the Cochrane-Orcutt procedure would have produced a consistent estimator of
the model slope with variance probably smaller than the variance of β$ .

34. You are given the following claims settlement activity for a book of automobile claims as of the
end of 1999:
Number of Claims Settled

Year Year Settled
Reported 1997 1998 1999
1997 Unknown 3 1
1998 5 2
1999 4
L = (Year Settled – Year Reported) is a random variable describing the time lag in settling a
claim. The probability function of L is f L (l ) = (1 − p ) p l , for l = 0, 1, 2 ,K .
Determine the maximum likelihood estimate of the parameter p.
(A) 3/11
(B) 7/22
(C) 1/3
(D) 3/8
(E) 7/15

35. You are studying the hazard rates associated with the time until settlement of claims. You are
given the following nine observations in terms of number of months to settle a claim:
1 3 3 4* 5 7* 8 8 10
* denotes that the claim is right-censored
You are also given:
(i)
t
~
bg
∆H t
~
bg
∆V$ H t
1 0.11111 0.01235
3 0.25000 0.03125
5 0.20000 0.04000
8 0.66667 0.22222
10 1.00000 1.00000
(ii) bg
h$ t , the kernel-smoothed estimate of the hazard rate, is determined using bandwidth
3 and the biweight kernel
R| d1 − x i , − 1 ≤ x ≤ 1
2 2
K b xg = S
15
16
|T0, otherwise.
Determine the 95% log-transformed confidence interval for h 4 . bg
(A) (0.000, 0.240)
(B) (0.023, 0.240)
(C) (0.024, 0.274)
(D) (0.031, 0.320)
(E) (0.035, 0.355)

36. You are using an ARMA(p,q) model to represent a time series. You perform diagnostic
checking to test whether the model was specified correctly.
Which of the following statements about diagnostic checking is incorrect?
(A) The autocorrelation function for the simulated series (the time series generated by the
model) should be compared to the sample autocorrelation function of the original
series.
(B) If the autocorrelation functions are not markedly different, then the next step is to
analyze the residuals of the model.
(C) If the model is correctly specified, then the residuals should resemble a white-noise
process.
(D) If the model is correctly specified, then the residual autocorrelations are themselves
uncorrelated, normally distributed random variables with mean 0 and variance T,
where T is the number of observations in the time series.
K
(E) The Q statistic, where Q = T ∑ r$k2 , is approximately distributed as chi-square with
k=1
b g
K − p − q degrees of freedom.

You are given the following information about workers’ compensation coverage:
(i) The number of claims for an employee during the year follows a Poisson distribution
with mean
b100 − pg / 100,
where p is the salary (in thousands) for the employee.
(ii) b
The distribution of p is uniform on the interval 0, 100 .
37. An employee is selected at random. No claims were observed for this employee during the
year.
Determine the posterior probability that the selected employee has salary greater than
50 thousand.
(A) 0.5
(B) 0.6
(C) 0.7
(D) 0.8
(E) 0.9

You are given the following information about workers’ compensation coverage:
(i) The number of claims for an employee during the year follows a Poisson distribution
with mean
b100 − pg / 100,
where p is the salary (in thousands) for the employee.
(ii) b
The distribution of p is uniform on the interval 0, 100 .
38. An employee is selected at random. During the last 4 years, the employee has had a total of 5
claims.
Determine the Bühlmann credibility estimate for the expected number of claims the employee
will have next year.
(A) 0.6
(B) 0.8
(C) 1.0
(D) 1.1
(E) 1.2

39. You are modeling a claim process as a mixture of two independent distributions A and B.
You are given:
(i) Distribution A is exponential with mean 1.
(ii) Distribution B is exponential with mean 10.
(iii) Positive weight p is assigned to distribution A.
(iv) The standard deviation of the mixture is 2.
Determine p using the method of moments.
(A) 0.960
(B) 0.968
(C) 0.972
(D) 0.979
(E) 0.983

40. For a two- variable regression based on seven observations, you are given:
∑ c Xi − X h
2
(i) = 2000
(ii) ∑ ε$ i2 = 967
Calculate sβ$ , the standard error of β$ .
(A) 0.26
(B) 0.28
(C) 0.31
(D) 0.33
(E) 0.35
**END OF EXAMINATION**
Course 4: May 2001 - 40 - STOP

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May, 2001 Society of Actuaries

Course 4: May 2001 -1- GO ON TO NEXT PAGE

(i) Annual claim counts follow a Poisson distribution with mean λ.

Two claims were observed during the first year.

Determine the variance of the posterior distribution of λ.

Course 4: May 2001 -2- GO ON TO NEXT PAGE

3. Calculate the kurtosis of this sample.

Course 4: May 2001 -3- GO ON TO NEXT PAGE

Course 4: May 2001 -4- GO ON TO NEXT PAGE

X2 = number of digits in the number

You are given:

(i) A total of 42 students participated in the study.

(ii) The regression equation Y = β1 + β 2 X 2 + β 3 X 22 + β 4 X 3 + β 5 X 4 + ε was fit to the data

(iii) A second regression equation Y = γ 1 + γ 2 X 2 + γ 3 X 22 + ε * was fit to the data and

Course 4: May 2001 -5- GO ON TO NEXT PAGE

(i) The full credibility standard is 100 expected claims.

(ii) The square-root rule is used for partial credibility.

Course 4: May 2001 -6- GO ON TO NEXT PAGE

Reported Loss Number Total Amount

(A) Less than 650

(B) At least 650, but less than 850

(C) At least 850, but less than 1050

(D) At least 1050, but less than 1250

(E) At least 1250

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(A) Less than 1.0

(B) At least 1.0, but less than 2.0

(C) At least 2.0, but less than 3.0

(D) At least 3.0, but less than 4.0

(E) At least 4.0

Course 4: May 2001 -8- GO ON TO NEXT PAGE

and then the restricted regression

You are given:

(B) Series I and II only

(C) Series I and III only

(D) Series II and III only

(E) Series I, II and III

Course 4: May 2001 -9- GO ON TO NEXT PAGE

(iii) Risks are equally likely to be type A or type B.

(v) The variance of the total losses is 296,962.

A randomly selected risk is observed to have total annual losses of 500.

Course 4: May 2001 - 10 - GO ON TO NEXT PAGE

(iii) Risks are equally likely to be type A or type B.

(v) The variance of the total losses is 296,962.

A randomly selected risk is observed to have total annual losses of 500.

Course 4: May 2001 - 11 - GO ON TO NEXT PAGE

0.1 0.2 0.5 1.0 1.3

Calculate the Kolmogorov-Smirnov statistic.

Course 4: May 2001 - 12 - GO ON TO NEXT PAGE

You are given:

Determine the value of β$ *2 , the standardized coefficient associated with X 2 .

Course 4: May 2001 - 13 - GO ON TO NEXT PAGE

For a mortality study with right-censored data, you are given:

1 15 100 0.0018 0.8500 14.424

(A) Less than 0.05

(B) At least 0.05, but less than 0.10

(C) At least 0.10, but less than 0.15

(D) At least 0.15, but less than 0.20

(E) At least 0.20