Risk evaluation

Risk evaluation

On policy level:
1. n incidents during a certain time period
  1. Total loss z = x_1+...+x_n,
    1. where x_i denotes the loss of the i-th incident
On portfolio level:
1. N different claim sizes during a certain time period
  1. Total portfolio loss Z = X_1+...+X_N,
    1. where X_i denotes the total loss of the i-th type of claim
Compensations will differ according to the type of contract:
1. z = actual total replacement value, f(x)= actual compensation of the each loss:
  1. z = f(x_1)+...+f(x_n)
  2. Given the i-th loss x_i, the contract f(x_i) determines the i-th compensation.
    1. Can now include the possibility of e.g. only covering losses x_i within a certain range, say [y,y+b], for y,b > 0:
      1. f(x_i) = 0 if x_i < y
        f(x_i) = x_i - y, if y < x_i < y+b
        f(x_i) = b, if x_i > y+b
        where y denotes a certain deductible
        (Reinsurance can be arranged in a similar way)
2. The insurance company is not necessarily obliged to cover the whole loss of the policy holder!

Resource summary

	Created by Mari Gunnerud about 10 years ago