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Stochastic analysis of life insurance surplus

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  • Nolde, Natalia
  • Parker, Gary

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.

Suggested Citation

  • Nolde, Natalia & Parker, Gary, 2014. "Stochastic analysis of life insurance surplus," Insurance: Mathematics and Economics, Elsevier, vol. 56(C), pages 1-13.
    • Handle: RePEc:eee:insuma:v:56:y:2014:i:c:p:1-13
    DOI: 10.1016/j.insmatheco.2014.02.006
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    References listed on IDEAS

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    Cited by:

    1. Chen, Li & Lin, Luyao & Lu, Yi & Parker, Gary, 2017. "Analysis of survivorship life insurance portfolios with stochastic rates of return," Insurance: Mathematics and Economics, Elsevier, vol. 75(C), pages 16-31.

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