Alarm system for insurance companies: a strategy for capital allocation

DOI10.1016/J.INSMATHECO.2012.02.009MaRDI QIDQ2444706zbMATH OpenOpenAlexFDO

Authors Yanyan Li

Publication date 10 April 2014

Published in Insurance Mathematics \& Economics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1006.5473

zbMATH Keywords

alarm systemcapital accumulation functioncapital allocationquantitative risk managementrisk processruin probability

Mathematics Subject Classification ID

Applications of queueing theory (congestion, allocation, storage, traffic, etc.) (60K30)

Abstract: One possible way of risk management for an insurance company is to develop an early and appropriate alarm system before the possible ruin. The ruin is defined through the status of the aggregate risk process, which in turn is determined by premium accumulation as well as claim settlement outgo for the insurance company. The main purpose of this work is to design an effective alarm system, i.e. to define alarm times and to recommend augmentation of capital of suitable magnitude at those points to prevent or reduce the chance of ruin. To draw a fair measure of effectiveness of alarm system, comparison is drawn between an alarm system, with capital being added at the sound of every alarm, and the corresponding system without any alarm, but an equivalently higher initial capital. Analytical results are obtained in general setup and this is backed up by simulated performances with various types of loss severity distributions. This provides a strategy for suitably spreading out the capital and yet addressing survivability concerns at satisfactory level.

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Cites work

• A finite-time ruin probability formula for continuous claim severities
• Excess of loss reinsurance under joint survival optimality
• scientific article; zbMATH DE number 2130681 (Why is no real title available?)
• Model processes in nonlinear prediction with application to detection and alarm
• Non-life insurance mathematics. An introduction with stochastic processes.
• Optimal Alarm Systems for Count Processes
• Ruin probabilities
• Two-Sided Bounds for the Finite Time Probability of Ruin

Cited in

(4)

• On branching models with alarm triggerings
• Risk models in insurance and epidemics: a bridge through randomized polynomials
• On the evaluation of finite-time ruin probabilities in a dependent risk model
• On finite-time ruin probabilities in a generalized dual risk model with dependence

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