What is the role of probability of composition?
The probability of composition plays a basic role in the calculation of premiums, reserves and in defining a corporate strategy. The likelihood of composition is the probability that two independent events will occur simultaneously. It is the basis of the division of probability that a mathematician used to evaluate insure risks. Risk estimates are used as instructions when price subscribers and when the company's executive officials decide on new markets.
Two events are considered independent if the result of one has no impact on the output of the other. For example, rolling Die twice to two independent results. To come with five on the first role does not mean that the second role will be more or less likely to be three. The insurance is assumed that many events are independent, such as the paths of two separate hurricanes or the probability that two different subscribers will have a traffic accident. In order to calculate the compound, the probability of the first event is multipliedthe second event.
As an example, consider that two subscribers with life insurance in the same society will die this year. The first, Harry, has a 20% chance of dying this year and the second, Larry, has 10% chance of dying this year. The likelihood of composition that Harry and Larry die during the year 0.10*0.20 = 0.02 or 2%. The fact that Harry Dies has no effect on Larry's dying and vice versa.
On the other hand, the likelihood of dependent events that occur simultaneously is found by a conditional probability. The occurrence of one dependent event will affect the probability of another dependent event. For example, rolling five on the first role of the cube will make it impossible for the sum of two roles to be four. In the victim's insurance, the probability of one subscriber, it increases if the neighbor's neighbor's house is on fire. The conditional probability is calculated using Bayes' sentence.
Insurance companies have very much ofI am in the probability analysis that any number of all their subscribers will claim during the year because they compensate for compensation. A mathematician uses a compound and conditional probability to calculate the probability of paying for each policy. Then the insurance subscriber will use the expected payout value to come with a competitive premium rate.
other mathematicians use the compound and conditional probability to analyze cash reserves to analyze the company to ensure that the company does not bankrupt and pays compensation. It is necessary to consider unlikely, but not impossible scenarios, such as Hurricane category four, which hit the capital or terrorist attack in the main metropolitan area. The management of insurance companies are interested in assessment of risks using composed probapors to consider the start of market development.