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Evaluation of the Capacity of Risk Carriers by Means of Stochastic-Dynamic Programming

Published online by Cambridge University Press:  29 August 2014

T. Pentikäinen  and
J. Rantala
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The Ministry of Social Affairs and Health, being the Supervising Office of Insurance in Finland, has established a special working group to investigate the problems involved with the solvency of insurers. A report will be compiled in a near future. The capacity of risk carriers is one of the problems dealt with, and it will be preliminarily reviewed in this paper.

The problem was treated by the working group parallelly by means of

1. an empirical approach observing actual fluctuations in underwriting gains of insurers, and

2. a theoretical approach, constructing a stochastic-dynamic model and studying its behaviour, especially its sensitivity to numerous background factors.

First the methods of investigation are described and their application is then demonstrated using some numerical data. Because a comprehensive report will be published by the working group separately, only the main schedule is given. For the same reason the consideration is limited here to stochastic risks, omitting the fact that the solvency of an insurer is also jeopardized by numerous “non-stochastic” risks such as failure in investments, political interference of the authorities, mismanagement of the company, or misappropriation of its property.

Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 12 , Issue 1 , June 1981 , pp. 1 - 21
Copyright
Copyright © International Actuarial Association 1981

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