- Journal of Business Economics and Finance
- Vol: 7 Issue: 4
- RUIN PROBABILITIES IN DEPENDENT INSURANCES WITH AUTOREGRESSIVE MODEL
RUIN PROBABILITIES IN DEPENDENT INSURANCES WITH AUTOREGRESSIVE MODEL
Authors : Elif Makbule Cekici, Sami Ozcan, Hasan Durmus
Pages : 365-375
Doi:10.17261/Pressacademia.2018.997
View : 8 | Download : 2
Publication Date : 2018-12-30
Article Type : Research
Abstract :Purpose- Risk analysis and ruin probabilities were calculated with the assumption of independence in the past, however this assumption does not reflect the reality at the present time. Today, insurance activities are more advanced, and consumers are more informed, for this reason existence of dependency between insurance branches within the portfolio of an insurance firm, is unavoidable. Aim of this study is to calculate the ruin probability for two dependent insurance branches. Methodology- In this study, monthly claim data of a leading insurance firm which belongs to two different insurance branches namely traffic and health, in the period of 2007-2016 are used. Findings- In the case of fixed interest rate and initial capital, it’s found that if dependence of insurance branches decreases, ruin probabilities decrease. Conclusion- In the case of fixed interest rate and initial capital, to decrease the ruin probability, dependence of branches should be decreased. To lower the dependence, collected premiums should be increased, thus lower adjustment coefficients can be obtained. Accordingly, with the lower adjustment coefficient, ruin probabilities can be decreased.Keywords : Ruin probability, dependent ruin probability, multivariate autoregressive process (MAR(1)), 2-parameter exponential distribution