Modeling catastrophic deaths using EVT with a microsimulation approach to reinsurance pricing
Recently, a marked Poisson process (MPP) model for life catastrophe risk was proposed in . We provide a justification and further support for the model by considering more general Poisson point processes in the context of extreme value theory (EVT), and basing the choice of model on statistical tests and model comparisons. A case study examining accidental deaths in the Finnish population is provided. We further extend the applicability of the catastrophe risk model by considering small and big accidents separately; the resulting combined MPP model can flexibly capture the whole range of accidental death counts. Using the proposed model, we present a simulation framework for pricing (life) catastrophe reinsurance, based on modeling the underlying policies at individual contract level. The accidents are first simulated at population level, and their effect on a specific insurance company is then determined by explicitly simulating the resulting insured deaths. The proposed microsimulation approach can potentially lead to more accurate results than the traditional methods, and to a better view of risk, as it can make use of all the information available to the re/insurer and can explicitly accommodate even complex re/insurance terms and product features. As an example we price several excess reinsurance contracts. The proposed simulation model is also suitable for solvency assessment.
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- McNeil, Alexander J., 1997. "Estimating the Tails of Loss Severity Distributions Using Extreme Value Theory," ASTIN Bulletin: The Journal of the International Actuarial Association, Cambridge University Press, vol. 27(01), pages 117-137, May.
- Pigeon, Mathieu & Antonio, Katrien & Denuit, Michel, 2013. "Individual Loss Reserving With The Multivariate Skew Normal Framework," ASTIN Bulletin: The Journal of the International Actuarial Association, Cambridge University Press, vol. 43(03), pages 399-428, September.
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