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Control of a portfolio of insurance Contracts

Published online by Cambridge University Press:  29 August 2014

Karl Borch
Karl Borch*
Affiliation:
Bergen
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1.1. In this paper we shall consider a given portfolio of insurance contracts, and we shall study the following two problems:

(i) How should this portfolio be reinsured?

(ii) What reserves should the company maintain to pay claims which will be made under the contracts in the portfolio?

This means that we shall ignore all questions as to how the company acquired the portfolio, i.e. some of the most important questions concerning management control of insurance companies, such as rating policy, underwriting control etc.

1.2. Even the two simple problems, which are singled out for study in this paper, cannot be solved unless we specify the objectives and the external circumstances of the company.

It is obvious that the reinsurance problem cannot be solved unless we know something about the company's “attitude to risk”, and about the cost of obtaining cover for various kinds of risk in the reinsurance market.

It is also obvious that we cannot solve the reserve problem unless we specify the safety requirements, which the company has to satisfy. We shall see in the following that we may also have to specify the portfolios, which the company expects to underwrite in the future.

Type
Papers presented to the ASTIN Colloquium Lucern
Information
ASTIN Bulletin: The Journal of the IAA , Volume 4 , Issue 1 , January 1966 , pp. 59 - 71
Copyright
Copyright © International Actuarial Association 1966

References

[1]Bellman, R. and Cooke, K. L.: Differential-Difference Equations, Academic Press 1963.Google Scholar
[2]Borch, K.: “The Utility Concept applied to the Theory of Insurance”, The ASTIN Bulletin, Vol. I, pp. 245–255.Google Scholar
[3]Borch, K.: “The Objectives of an Insurance Company”, Skandinavisk Aktuarietidskrift, 1962, pp. 162–175.Google Scholar
[4]Borch, K.: “The Optimal Management Policy of an Insurance Company” Proceedings of the Casualty Actuarial Society, Vol. 51. pp. 182–197.Google Scholar
[5]Neumann, J. Von and Morgenstern, O., Theory of Games and Economic Behavior, 2nd Edition, Princeton, 1947.Google Scholar
[6]Shubik, M. and Thompson, G., “Games of Economic Survival”, Naval Research Logistics Quarterly, 1959, pp. 111–123.Google Scholar