tailieunhanh - RISK AND INSURANCE

One finds that there is a positive correlation between a country’s level of development and insurance coverage. Developed countries tend to have better developed and well- functioning insurance services sectors both domestically and in terms of insurance exports, as compared to developing countries. This is perhaps most evident when one compares the share of industrialized countries in the world insurance markets, which in 2004 stood at per cent as compared with per cent for emerging markets, the majority of which are developing countries. Another good indication of insurance penetration is the premium volume generated as a percentage of. | EDUCATION AND EXAMINATION COMMITTEE OF THE SOCIETY OF ACTUARIES RISK AND INSURANCE by Judy Feldman Anderson FSA and Robert L. Brown FSA Copyright 2005 by the Society of Actuaries The Education and Examination Committee provides study notes to persons preparing for the examinations of the Society of Actuaries. They are intended to acquaint candidates with some of the theoretical and practical considerations involved in the various subjects. While varying opinions are presented where appropriate limits on the length of the material and other considerations sometimes prevent the inclusion of all possible opinions. These study notes do not however represent any official opinion interpretations or endorsement of the Society of Actuaries or its Education and Examination Committee. The Society is grateful to the authors for their contributions in preparing the study notes. P-21-05 SECOND PRINTING Printed in . 1 RISK AND INSURANCE I. INTRODUCTION People seek security. A sense of security may be the next basic goal after food clothing and shelter. An individual with economic security is fairly certain that he can satisfy his needs food shelter medical care and so on in the present and in the future. Economic risk which we will refer to simply as risk is the possibility of losing economic security. Most economic risk derives from variation from the expected outcome. One measure of risk used in this study note is the standard deviation of the possible outcomes. As an example consider the cost of a car accident for two different cars a Porsche and a Toyota. In the event of an accident the expected value of repairs for both cars is 2500. However the standard deviation for the Porsche is 1000 and the standard deviation for the Toyota is 400. If the cost of repairs is normally distributed then the probability that the repairs will cost more than 3000 is 31 for the Porsche but only 11 for the Toyota. Modern society provides many examples of risk. A homeowner faces a large .