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

• Main Author: Abigail Gunawan, Jeannette
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/55199
• Institution: Institut Teknologi Bandung

Indonesia is one country which is prone to natural disasters. In the event of a natural disaster, a life insurance company may transfer some of its risk to a reinsurance company by purchasing a reinsurance product, for example, a Catastrophe Excess of Loss (Cat XL), and pays a compensation to the reinsurance company in the form of a reinsurance premium. In this Final Project, a model for determining a Cat XL reinsurance premium is discussed, using as a case study, the data on natural disasters in Indonesia and the data on the number of people died caused by the natural disasters in the years 2000-2019, taken from the website of Badan Nasional Penanggulangan Bencana (BNPB). The number of natural disasters in Indonesia which cause at least m people died is assumed to have a Poisson distribution; the number of people died in the natural disasters given at least m people died is modeled by a Discrete Generalized Pareto distribution; the number of claims reported to a life insurance company caused by the natural disaster are assumed to have a Beta-Binomial distribution; and the claims severity is assumed to follow an exponential distribution. Using a Monte Carlo simulation, the Cat XL reinsurance premiums are determined using two risk measures, namely: the Expected Value Principle (EVP) and the Value-at-Risk (VaR).