1. Why using a stochastic model
1. Why using a stochastic model
1. Why using a stochastic model
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Paid losses<br />
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Paid losses<br />
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Paid losses<br />
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Paid losses<br />
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Insurers bear as well a significant risk of bankruptcy in a catastrophic year<br />
Ideal world (average)<br />
Profit<br />
Good year<br />
Profit<br />
Bad year<br />
Catastrophe year<br />
• Amount of loss<br />
and probability<br />
of catastrophic<br />
year<br />
• Can make the<br />
insurer insolvent<br />
Loss<br />
Loss<br />
• With deterministic<br />
analyzes you<br />
have information<br />
usually only up to<br />
a (slightly) bad<br />
year<br />
3
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