Use of Actuarial Models for Determining Premiums and Reserves

Abstract

Premium and reserve determination is a crucial aspect in the insurance industry, which ensures the ability of insurance companies to meet their obligations to policyholders and continue to operate sustainably. This study aims to explore the use of actuarial models in premium and reserve determination, focusing on classical models such as mortality and run-off models as well as modern techniques such as chain-ladder and Monte Carlo simulations. The data used includes historical information on claims and premiums from several leading insurance companies over the last five years. The research methodology involves data analysis using various actuarial models to estimate fair premiums and adequate reserves. The results of the analysis show that the use of appropriate actuarial models can produce more accurate premium estimates and more reliable reserves, compared to traditional approaches. In addition, the study found that the chain-ladder model and Monte Carlo simulation provide advantages in dealing with high claim variability. The findings of this study provide significant practical implications for insurance companies in managing risk and determining premium and reserve policies. The application of appropriate actuarial models can help insurance companies in improving financial stability and policyholder confidence. This study also suggests further research to explore the use of actuarial models in the context of climate change and other emerging risks.