Managing uncertainty in a general insurance company

Daykin, C. D.; Hey, G. B.

doi:10.1017/s0020268100043109

Cited by 42 publications

(37 citation statements)

References 22 publications

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“…This is the actuarial premium without any profit margin and can be deduced from the insurer's previous claims data and a loading factor to account for expenses and interest rates (Daykin & Hey 1990). Rather than complicating the model with a precise formulation for this factor we suppose that the breakeven premium is a stochastic process (Pentikäinen 1986).…”

Section: Markov Modelmentioning

confidence: 99%

Dynamic Pricing of General Insurance in a Competitive Market

Emms

2007

ASTIN Bull.

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A model for general insurance pricing is developed which represents a stochastic generalisation of the discrete model proposed by Taylor (1986). This model determines the insurance premium based both on the breakeven premium and the competing premiums offered by the rest of the insurance market. The optimal premium is determined using stochastic optimal control theory for two objective functions in order to examine how the optimal premium strategy changes with the insurer's objective. Each of these problems can be formulated in terms of a multi-dimensional Bellman equation.In the first problem the optimal insurance premium is calculated when the insurer maximises its expected terminal wealth. In the second, the premium is found if the insurer maximises the expected total discounted utility of wealth where the utility function is nonlinear in the wealth. The solution to both these problems is built-up from simpler optimisation problems. For the terminal wealth problem with constant loss-ratio the optimal premium strategy can be found analytically. For the total wealth problem the optimal relative premium is found to increase with the insurer's risk aversion which leads to reduced market exposure and lower overall wealth generation.

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Section: Markov Modelmentioning

confidence: 99%

Dynamic Pricing of General Insurance in a Competitive Market

Emms

2007

ASTIN Bull.

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“…The market volume is specified separately for each liability type, as is the fraction of that particular part of the market held by the company. 4.10 The premiums written by the market are assumed to be the product of the total volume in terms of numbers of policies and the average market premium in £ sterling. Changes in market volume are determined by specified growth rates, which are specified both for the past and for the future, with flexibility to allow for different growth rates in two separate past periods and in two separate future periods.…”

Section: Claim Variabilitymentioning

confidence: 99%

Modelling the operations of a general insurance company by simulation

Daykin¹,

Hey²

1989

J. Inst. Actuar.

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1.1 The traditional approach to examining the financial status of a company is to look at the balance sheet and the profit and loss account. Such information is usually publicly available, it is certified by the auditors as having been drawn up according to relevant accounting standards and it is generally presumed to communicate reliable information.1.2 In the case of a manufacturing or trading company the profit and loss account records purchases and sales and the balance sheet will include a valuation of stock in hand, since it is anticipated that this will give rise to future sales income. Working capital is required because products have to be manufactured or purchased before they can be sold. Profit is realized when the product is sold for more than it cost to buy it or to make it.

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“…The paper by Wilkie (1987) covers one such application, and Appendix 4 of the paper by Daykin & Hey (1990) surveys insurance applications of the option pricing model.…”

Section: Introductionmentioning

confidence: 99%

Reserving for deferred capital gains tax (an application of option pricing theory)

Sherris¹

1992

J. Inst. Actuar.

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This paper sets out a framework, based on option pricing theory, that can be used to assess the value of deferred unrealised capital gains tax. In the U.K. and Australia, capital gains tax is paid on realisation of assets and the basis for determining the tax allows for inflation indexation of the cost base of the asset. Capital gains tax payments under these circumstances are shown to resemble those of a complex option. A number of theoretical approaches to the valuation of this option are discussed in the paper.

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Managing uncertainty in a general insurance company

Cited by 42 publications

References 22 publications

Dynamic Pricing of General Insurance in a Competitive Market

Dynamic Pricing of General Insurance in a Competitive Market

Modelling the operations of a general insurance company by simulation

Reserving for deferred capital gains tax (an application of option pricing theory)

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