Model of Reserve for Long-Term Personal Insurance

Abstract

In order to fulfill its liabilities, an insurance company forms insurance reserves. Its solvency and financial credibility depends on how precisely these reserves are calculated. It is essential to form reserve based on the actual rate of return, corresponding to investment of funds. In this article a multiple state model is considered as a foundation for calculating the reserve size. One of the features of this model is that Thiele differential equations are used for calculating the value of reserve at each moment of time. Specific conditions of different long-term personal insurance contracts lead to various corresponding actuarial models. Results obtained via theoretical models are applicable in many practical cases, including usage of flexible scale of rate of return for investment of insurance funds.

Keywords:

long-term insurance, long-term personal insurance reserve, multiple state model