1
WST322 2013
Chapter 8 Risk Models 2
Aggregate Claims Distributions Under Reinsurance
PROPORTIONAL REINSURANCE WITH RETENTION LEVEL α
1. Number of claims has the same distribution for the insurer and reinsurer
because they both pay part of all claims
reinsurer insurer
∑N individual Z = (1 − α)Xi Y = αXi
2. Claim Amounts For S = i=1 Xi , claims:
aggregate SR = (1 − α)S SI = αS
claims:
EXCESS OF LOSS REINSURANCE
1. Number of claims
Complete Data: same for insurer and reinsurer, N
Incomplete Data: Insurer N (pays a part of every claim)
Reinsurer SR = W1 + W2 + ... + WN R where N R is the random variable
for the number of nonzero payments made by the reinsurer
reinsurer
{ { insurer
0 if X ≤ M X if X ≤ M
individual Z= Y =
X − M if X > M M if X > M
2. Claim Amounts claims:
aggregate SR = Z1 + Z2 + ... + ZN (Com- SI = Y1 + Y2 + ... + YN
claims: plete Data Case, or some Zi ’s are
modeled as 0)
Distribution of NR?
N R = I1 + I2 + ... + IN where
N R: total number of claims for the reinsurer
{
1 if Xj > M (reinsurer pays)
Ij ’s: indicator random variables Ij =
0 if Xj ≤ M (no reinsurer payment)
Let Π = P [Ij = 1] = P [Xj > M ] and P [Ij = 0] = 1 − Π so that
Ij ∼ Bin(1, Π).
This study source was downloaded by 100000849253938 from [Link] on 05-23-2024 13:06:27 GMT -05:00
[Link]
2
N : total number of claims
Individual Risk Model A portfolio of a fixed number of risks; risks are
independent, claim amounts are not necessarily iid, the number of risks n
does not change. e.g. life insurance
S = Y1 + Y2 + ... + Yn
Yj : j th risk claim amount
z number of claims from j th risk is Nj ∈ {0, 1}
z P [claim from j th risk] = qj
z Xj = Yj |Nj = 1: If a claim occurs the claim amount is Xj , with
distribution Fj (x), mean µj , variance σj2 .
z Nj ∼ Bin(1, qj ) so that Yj is a compound binomial with individual
claims Xj
So S is the sum of n independent compound binomial RV’s:
[∑ ] ∑ ∑
n
– E[S] = E j=1 Y j = nj=1 E [Yj ] = nj=1 qj µj
(∑ ) ∑
n
– var(S) = var Yj = nj=1 var (Yj ) (risks are independent) =
∑n j=1
j=1 (qj σj + qj (1 − qj )µj
2 2
Individual Risk Model Collective Risk Model
z n is fixed z N is a RV
z Number of claims from each z No restrictions on the number
risk is restricted to 0 or 1 of claims
z Individual risks are indepen- z Individual claim amounts are
dent independent
This study source was downloaded by 100000849253938 from [Link] on 05-23-2024 13:06:27 GMT -05:00
[Link]
Powered by TCPDF ([Link])