On an Insurance Pricing Model for Catastrophic Risks

The anticipation of the amount of the losses generated by natural disasters is of maximum importance for insurers. We present a method to determine insurance premiums for catastrophic risks. This method takes into account: statistical data reflected in the yearly average compensation index, an appropriate time period in which the insurance company retrieves the financial losses incurred by the payment of large compensations, the preventive setting up of a reserve fund of the insurer in order to cover partially the catastrophic risk, and a reinsurance strategy. All these are meant to keep up the level of the premiums within an interval of values such that they are still competitive or at least fairly good. In our scenario, we will consider the situation in which the insurer has to borrow money in order to be able to pay the damage claims that arise following a calamity, the loans being refunded in a certain number of years. We give numerical illustration.