You are given that the states in Question 10.8 correspond to

• State 1: 0% discount

• State 2: 10% discount

• State 3: 40% discount

• State 4: 70% discount

If the undiscounted premium is $600 per annum, calculate the steady annual revenue the policy is likely to generate from 27,000 policyholders.

Question 10.8

A no-claims discount model has four states and associated 1-step transition probabilities as shown in Figure 10.2. Calculate the probability that a policyholder initially in State 1 will be in State 3 after 5 years.

Transcribed Image Text:

0.5 0.5 2 0.6 3 0.7 0.4 0.3 0.2 Figure 10.2 No-claims discount model and transition probabilities for Question 10.8. 0.8