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Index clause: analytical properties and the capitalization strategy

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Abstract

In non-life insurance, some bodily liability losses (e.g. loss of income) are paid out as annuity until specified age or death of victim. In case of excess of loss reinsurance, reinsurers often do not accept the inflation risk embedded in such losses and therefore include in the reinsurance treaty so called index clause which increases the priority by the impact of the inflation on the loss. A formula to calculate the expected reinsurance recoveries and its limiting behavior in case of presence of the index clause is derived and illustrated. A capitalization strategy which minimizes the insurer’s loss is derived.

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References

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Acknowledgments

This paper was supported by the means of institutional support of a long-term conceptual advancement of science and research at the Faculty of Informatics and Statistics, University of Economics, Prague, Czech Republic.

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Authors and Affiliations

  1. University of Economics, Prague, W. Churchill Sq. 4, 130 67, Prague 3, Czech Republic

    Pavel Zimmermann

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  1. Pavel Zimmermann
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Correspondence to Pavel Zimmermann.

Appendix: Probabilities of death and survival applied

Appendix: Probabilities of death and survival applied

Generation life tables constructed in [1] updated for the values of the year 2007.

Table 7
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Zimmermann, P. Index clause: analytical properties and the capitalization strategy. Eur. Actuar. J. 2, 149–160 (2012). https://doi.org/10.1007/s13385-012-0048-2

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  • DOI: https://doi.org/10.1007/s13385-012-0048-2

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