THE DETERMINATION OF THE EXCESS OF LOSS CATASTROPHE REINSURANCE PREMIUM USING THE EXPECTED VALUE PRINCIPLE AND TAIL-VALUE-AT-RISK: CASE STUDY OF THE NATURAL DISASTERS DATA IN INDONESIA FOR YEARS 2000-2019

• Main Author: Ferdi, Julius
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/55198
• Institution: Institut Teknologi Bandung

In Indonesia, natural disasters often occur and may cause many casualties. As a result, a life insurance company may need to pay very large claims if many lives insured by the life insurance company died in the natural disasters. A reinsurance scheme is a method to share the risk of large claims with a reinsurance company. This final project discusses a model to determine the reinsurance premium for a Catastrophe Excess of Loss (Cat XL) reinsurance scheme. There are several modelling stages; one of which is using the Discrete Generalized Pareto distribution to model the number of people died caused by a natural disaster given at least a number of people died. Of the number of people died caused by the natural disaster, the number of claims reported to a life insurance company could be determined. A Beta-Binomial distribution is used to model the number of claims reported to a life insurance company and the Lognormal distribution is used to model the claim size. Then, the total amount of claims need to be paid by a reinsurance company in a Cat XL contract, and the Cat XL reinsurance premium could be determined. As a case study, this final project uses the data on natural disasters in Indonesia and the number of people died caused by the natural disasters, from the year 2000 to the year 2019. Using a Monte Carlo simulation, the Cat XL reinsurance premiums are determined using the Expected Value Principle and Tail-Value-at-Risk. A sensitivity analysis is carried out to determine the effect of changes in certain parameters on Cat XL reinsurance premiums.