Approximations for stop-loss reinsurance premiums

Rajko Reijnen, Willem Albers, Wilbert C.M. Kallenberg

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    Abstract

    Various approximations of stop-loss reinsurance premiums are described in literature. For a wide variety of claim size distributions and retention levels, such approximations are compared in this paper to each other, as well as to a quantitative criterion. For the aggregate claims two models are used, both involving various model parameters. In the first model the claims are simply independent, while a certain dependence structure is assumed in the second model. A relatively simple rule of thumb is formulated for choosing the best approximation for either model. This approximation satisfies the aforementioned criterion. Finally, by comparing the two models, it is demonstrated that a small degree of dependence between the claims already has a substantial effect on the stop-loss premiums. The difference can run up to a factor 500.
    Original languageEnglish
    Place of PublicationEnschede
    PublisherUniversity of Twente, Faculty of Mathematical Sciences
    Number of pages15
    Publication statusPublished - 2003

    Publication series

    NameMemorandum Faculty of Mathematical Sciences
    PublisherDepartment of Applied Mathematics, University of Twente
    No.1695
    ISSN (Print)0169-2690

    Keywords

    • MSC-62P05
    • MSC-62E17

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  • Cite this

    Reijnen, R., Albers, W., & Kallenberg, W. C. M. (2003). Approximations for stop-loss reinsurance premiums. (Memorandum Faculty of Mathematical Sciences; No. 1695). Enschede: University of Twente, Faculty of Mathematical Sciences.