1. Why using a stochastic model

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Paid losses Premium received Paid losses Premium received Paid losses Premium received Paid losses Premium received Insurers bear as well a significant risk of bankruptcy in a catastrophic year Ideal world (average) Profit Good year Profit Bad year Catastrophe year • Amount of loss and probability of catastrophic year • Can make the insurer insolvent Loss Loss • With deterministic analyzes you have information usually only up to a (slightly) bad year 3
Recoveries Premium received Paid losses Premium received Paid losses Premium received Paid losses Premium received Paid losses Reinsurance decreases profit on average, but increases profit in a catastrophe year Average Profit RI-Rec Good year Profit RI Bad year Profit RI Catastrophe year RI • Owing to quantification of risks by <strong>stochastic</strong> <strong>model</strong>s, the insurer can define its reinsurance cover Recoveries Loss • Unless reinsurers are subsidising company’s business, you will always have lower expected profit on average compared to the case with no reins. 4
Page 1 and 2: Using Stochastic model for choosing
Page 3: Principle of insurance is to reduce
Page 7 and 8: Approximation of the distribution f
Page 9 and 10: Stochastic modeling when we are not
Page 11 and 12: ReMetrica DFA Simulation MEAN = $30
Page 13 and 14: ReMetrica DFA Simulation MEAN = $30
Page 15 and 16: Our Example to be modelled • Port
Page 17 and 18: What is a surplus • The proportio
Page 19 and 20: Windstorm • Typical features: - L
Page 21 and 22: Flood • Typical feature - Flood p
Page 23 and 24: Hazard Example Digital terrain mode
Page 25 and 26: loss Output from Natural Catastroph
Page 27 and 28: Other method: Exposure rating that
Page 29 and 30: Using the software ReMetrica, used
Page 31 and 32: Measure for profitability • Avera
Page 33 and 34: What is a good risk measure • A r
Page 35 and 36: VAR Value At Risk • Only uses one
Page 37 and 38: loss Do not think that the choice o
Page 39 and 40: Outline of the presentation 1. Why
Page 41 and 42: Introducing the concept of Ceded RO
Page 43 and 44: Creation of value • Shareholders
Page 45 and 46: Conclusion Stochastic modeling is a

1. Why using a stochastic model

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