Year: 2014
Type: article
Abstract: In actuarial science ruin theory uses mathematical models to describe an insurer’s vulnerability to ruin. Theoretical foundation of ruin theory describes an insurance company who experiences two opposing cash flows: incoming cash premiums and outgoing claims. The insurer’s surplus at any future time is a random variable since its value depends on premiums and claims. The insurer want to keep the probability of ruin \nas small as possible, or at least below a predetermined bound. Lundberg’s inequality provides an upper bound for the probability of ruin in infinite time and is one of the most \nfamous results in ruin theory. One of the options for an insurer who wishes to reduce the probability of ruin is to effect reinsurance. We shall consider two kinds of reinsurance arrangement: proportional and excess of loss reinsurance. We could consider a reinsurance \narrangement (from an insurer point of view) to be optimal if it minimizes the probability of ruin. The goal of this paper is to illustrate how changes in the premium loading factor (used by insurer and reinsurer) affect the probability of ruin in both kind of reinsurance. We find also the optimal type of reinsurance under certain conditions.
Author: Ján Gogola
Language: Czech
Topic: Probability and Risk Models
Field: Decision Sciences
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2733888654