Determine size of the required loss reserve using chebychev

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Question: As risk manager, you are concerned about the additional liability exposure the firm will face if it accepts a risky project. You obtain an estimate of the annual total loss distribution from an insurance company that has many years of experience dealing with these types of exposures. The annual total loss distribution has a mean of $160,000, a standard deviation of $50,000, and a skewness coefficient of 2. The management team is worried about how the potential liability losses will be financed. The company decides to establish a loss reserve such that it can be 91% confident that its actual losses can be met by the fund. Determine the size of the required loss reserve using Chebychev's Theorem and also the Normal Power Approximation.

Reference no: EM133377216

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