project

Risk Management Statistics Project

Fall 2014

Instructions: Complete the following assignment utilizing an Excel spreadsheet. Summarize your answers and submit them in D2L no later than 11:59 pm on November 21, 2014. You must use the data set provided to you on the P drive. This is an individual assignment and anyone found getting help from another student or providing help to another student will receive a zero on this project.

Your company has historical information on 800 exposure units reflected in the data set on the I-drive. Summarize the data into frequency and severity distributions that will be used to answer the following questions.

You are asked to provide information regarding the feasibility of the company retaining the losses and setting up a funded reserve, rather than purchasing insurance. You decide to complete the following analysis using a computer spreadsheet program and/or other statistical software.

1. Calculate the mean, standard deviation, and skewness coefficient for both the frequency and severity distributions.

2. Use the Chi-Squared Goodness-of-Fit test to determine (at the 88% level of confidence) if loss frequency follows a Poisson distribution.

3. Determine the total loss distribution and calculate the mean, standard deviation, and skewness of the total loss distribution.

4. Use Chebyshev’s Theorem, the Normal Approximation, and the Normal Power Approximation to find the 92% thresholds for total losses.

5. If the company decides to retain the loss exposure, what reserve amount do you recommend? Explain your answer.