Abstract

Journal of Actuarial Practice

Volume 9, Numbers 1 and 2, 2001

Premium Calculation Using the Probability of Ruin

K.C. Yuen, H. Yang and K.L. Chu

Abstract

We introduce a new premium calculation principle called the standard deviation-skewness premium calculation principle. This premium calculation principle, which satisfies most of the desirable properties of premium calculation principles, has two unknown parameters, α₁ and α₂. These parameters are determined by setting ruin probability levels. Specifically, simulations are used to find the values of, α₁ and α₂ such that the probability of ruin does not exceed a certain level of acceptance. We also show how this premium calculation principle can be used to allocate premiums among a

block of m types of homogeneous risks.

Key words and phrases: PHI benefits, force of transition, Markov chain, lapses.

Corresponding Author:

K.C. Yuen

Department of Statistics and Actuarial Science,

University of Hong Kong,

Pokfulam Road,

HONG KONG