General Insurance
Under the law of large numbers, what happens to the reliability of an insurer's loss prediction as the number of similar exposure units grows?
Answer and explanation
Answer: A. More similar exposure units bring actual experience closer to expected experience, which is the reason insurers seek volume and homogeneity in a book of business. Variation falls rather than rises, and the units need to be similar rather than identical in amount.Source: PSI — New York DFS Insurance Candidate Information Bulletin — Outline, law of large numbers
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