2016 #12c
I remember seeing this somewhere else in the wiki's / battlecards but can't find it now - in the examiners report for Fall 2016 #12c, why is it true that "as expected losses increase, we would expect lesser variation in the losses" since 1) high loss values tend to be more volatile and 2) there tend to be fewer of them? Thanks in advance!
Comments
This is basically the law of large numbers - when the expected losses increase it is generally assumed to be due to more claims coming in rather than the expected claim severity changing. So with more claims we expect there to be less variation the average claim which in turn makes the overall loss more stable/have less variation.
Ah I see - thanks!