Actuarial Risk Modeling: Case Of A Home Insurance Portfolio

Abstract

Abstract:

Insurance is a major pillar of the economy, providing protection against unforeseen events and allowing both individuals and businesses to shield against potentially devastating financial losses. This study focuses on the home insurance product for a Moroccan insurance company, which offers comprehensive coverage for the dwelling and belongings against various risks such as fire, water damage, and theft. This type of insurance guarantees significant amounts, making the insurer's risk exposure very dangerous, especially in the event of claims ratio deviation. Therefore, the primary objective of this research is to assess the exact value of the actuarial risk associated with the home insurance portfolio to preserve its financial sustainability. In this study, and in order to evaluate the overall risk for the product in question, we focus on modeling the number of annual claims and the resulting financial burden, using various statistical modeling laws to quantify the overall risk that the insurer could face and therefore anticipate its commitments to policyholders. Additionally, we analyze the results obtained through the application of Monte Carlo simulation, which is one of the most effective methods for solving complex numerical problems. Therefore, we propose a risk quantification model based on two different methods which represents a decision making tool for insurance companies.

Keywords: Monte Carlo; Statistical Laws, Liability, Portfolio, Maximum Likelihood, Mutualization