Stochastic analysis of life insurance surplus

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  1. Department of Statistics
  2. Stochastic analysis of life insurance surplus

Stochastic analysis of life insurance surplus

TitleStochastic analysis of life insurance surplus
Publication TypeJournal Article
Year of Publication2014
AuthorsNolde, N, Parker, G
JournalINSURANCE MATHEMATICS & ECONOMICS
Volume56
Pagination1-13
Date PublishedMAY
Type of ArticleArticle
ISSN0167-6687
KeywordsAR(1) process, Distribution function, Insurance surplus, Stochastic rates of return
AbstractThe aim of the paper is to examine the behavior of insurance surplus over time for a portfolio of homogeneous life policies. We distinguish between stochastic and accounting surpluses and derive their first two moments. A recursive formula is proposed for calculating the distribution function of the accounting surplus. We then examine the probability that the accounting surplus becomes negative in a given insurance year. Numerical examples illustrate the results for portfolios of temporary and endowment life policies assuming a conditional AR(1) process for the rates of return. (C) 2014 Elsevier B.V. All rights reserved.
DOI10.1016/j.insmatheco.2014.02.006