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Probability distribution of total losses

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Reference no: EM133052002

1. Rainie Suppose that Rainieactuarially fair premiumRainie'sonly owns a $200,000 house and has a 5% chance of experiencing a fire in any given year. Assume that only one fire per year can occur and that if a fire occurs, the house is completely destroyed.

purchases a full insurance contract from Lemonade Insurance Company for an . This contract would pay all losses due to the fire. Assume that contract is the insurance contract Lemonade Insurance Company sold.

A. What is the probability distribution of total losses for Lemonade Insurance Company if they sell a contract to Rainie?

B. What is the actuarially fair premium [AFP] Lemonade Insurance Company will charge Rainie in the coming year? Show your work

C.What is the amount of risk Lemonade Insurance Company faces if they have Rainie as their only customer? Show your work

Reference no: EM133052002

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