Hi I have a couple of questions about assignment X3 1) on Q3.6 there is a reasonableness check which includes dividing by 0.7 - where does this number come from? the check is 293 = ( claim freq * claim sev )/0.7 2) in Q3.7b we use a normal approximation to a discrete distribution but no continuity correction is used. This contradicts pg19 of chapter 11 where we do use one...can you explain why you do in one case and not the other please? Thanks
1) The 0.7 is an approximate loss ratio. If we ignore the reinstatement premium, then the loss ratio would be 1-0.25-0.15 (ie 1-acquisition costs - allowance for fixed expenses and profit) = 0.6. It needs to be slightly higher than this though, because we'll also have any reinstatement premium. So 0.7 is a reasonable enough approximation. 2) Q3.7 ignores the continuity correction. Strictly speaking, you should include it.
