Ruin Problems: Simulation or Calculation?

D.C.M. Dickson and H.R. Waters

British Actuarial Journal, 1996, vol. 2, issue 3, 727-740

Abstract: In this paper we use a case study of a non-life insurance portfolio to demonstrate how recent research in ruin theory can be applied to solvency problems. By approximating the aggregate claims distribution for the portfolio by a translated gamma distribution, we estimate ruin probabilities through a recursive procedure when the insurer earns investment income on its surplus. We also show the results of applying simulation techniques to this problem, and discuss some advantages and disadvantages of simulation as a means of assessing ruin probabilities. Finally we discuss the calculation of the probability of ruin at the end of a specified time period.

Date: 1996
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