Ruin Theory
Overview
In the insurance industry, the event that occurs when an insurance company becomes insolvent is called "ruin". It is a core concern of an
insurer to be able to minimize and control the probability of ruin. This requires a set of models sometimes called
"theory of ruin" or ruin theory.
Ruin theory is a primary concern in
premium calculations.
That is, premiums are set in order to set the probability of ruin at some predefined level while allowing for
dividends to be paid to the share holders.
Topics
