Stochastic analysis of life insurance surplus

Natalia Nolde and Gary Parker

Insurance: Mathematics and Economics, 2014, vol. 56, issue C, 1-13

Abstract: The 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.

Keywords: Insurance surplus; Stochastic rates of return; AR(1) process; Distribution function (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:56:y:2014:i:c:p:1-13

DOI: 10.1016/j.insmatheco.2014.02.006

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