Premium Forecasting of an Insurance Company: Automobile Insurance

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Fouladvand, M. Ebrahim ; Darooneh, Amir H. (2002)
  • Subject: Quantitative Finance - Pricing of Securities | Condensed Matter - Statistical Mechanics

We present an analytical study of an insurance company. We model the company's performance on a statistical basis and evaluate the predicted annual income of the company in terms of insurance parameters namely the premium, total number of the insured, average loss claims etc. We restrict ourselves to a single insurance class the so-called automobile insurance. We show the existence a crossover premium p_c below which the company is loss-making. Above p_c, we also give detailed statistical analysis of the company's financial status and obtain the predicted profit along with the corresponding risk as well as ruin probability in terms of premium. Furthermore we obtain the optimal premium p_{opt} which maximizes the company's profit.
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