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Measuring Process Risk in Income Protection Insurance

Published online by Cambridge University Press:  17 April 2015

Steven Haberman ,
Zolan Butt  and
Ben Rickayzen
Steven Haberman
Affiliation:
Cass Business School, City University, 106 Bunhill Row, London EC1Y 8TZ, United Kingdom, Phone: 44 20 7040 8601, Fax: 44 20 7040 8899, Email: [email protected]
Zolan Butt
Affiliation:
Cass Business School, City University, 106 Bunhill Row, London EC1Y 8TZ, United Kingdom, Phone: 44 20 7040 8601, Fax: 44 20 7040 8899, Email: [email protected]
Ben Rickayzen
Affiliation:
Cass Business School, City University, 106 Bunhill Row, London EC1Y 8TZ, United Kingdom, Phone: 44 20 7040 8601, Fax: 44 20 7040 8899, Email: [email protected]
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Abstract

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The main objective of this paper is to measure the process error for a portfolio of independent disability insurance policies in a multiple state modelling context. We consider the calculation of premiums for a portfolio of income protection insurance policies in a stochastic environment represented both by random transitions in the underlying multiple state model and random external economic factors in the form of stochastic investment returns and inflation. We also investigate the sensitivity of the process error to the level of volatility incorporated in a given model using suitably defined risk measures. We then draw conclusions and identify possible avenues for future research.

Keywords

Income protection insuranceasset and liability process riskinsolvencyrisk-based capitalrisk-loaded premiummultiple state models
Type
Workshop
Information
ASTIN Bulletin: The Journal of the IAA , Volume 34 , Issue 1 , May 2004 , pp. 199 - 227
Copyright
Copyright © ASTIN Bulletin 2004

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