RISK MGT 382 An insurance company’s losses of a particular type per year are to a reasonable
January 12th, 2018
An insurance company’s losses of a particular type per year are to a reasonable approximation normally distributed with a mean of $150million and a standard deviation of $50million. (Assume that the risks taken on by the insurance company are entirely nonsystemic). The one year risk-free rate is 5% per annum with annual compounding. Estimate the cost for the following:a. A contract that will pay in one-year’s time 60% of the insurance company’s costs on a pro rata basis.b. A contract that pays $100million in one-year’s time if losses exceed $200million.