Question
For a group health contract, aggregate claims are assumed to have an exponential distribution, where the mean of the distribution is esti- mated by the
For a group health contract, aggregate claims are assumed to have an exponential distribution, where the mean of the distribution is esti- mated by the group underwriter. Aggregate stop-loss insurance for aggregate claims in excess of 125% of the expected aggregate claims is provided by a premium that is twice the expected stop-loss claims; that is, the percentage "loading" in the premium is 100%. You have discovered an error in the underwriter's method of calculating expected aggregate claims. The underwriter's estimate is 90% of the correct estimate. Determine the actual percentage loading in the premium. Note: the actual percentage loading will not be 100% as the wrong distribution for aggregate claims was assumed in the underwriter's method
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