The Insurance element simulates claims against an insurance policy. You must specify the properties of the insurance policy (the deductible, the cap, and when these are reset), and then you specify one or more discrete claims. The key outputs are the cumulative covered and uncovered losses for the claims.
The Reinsurance.gsm example model can be found in the can be found in the Financial Examples folder in your GoldSim directory (accessed by selecting File | Open Example... from the main menu). In this model, two insurance elements are used to model a reinsurance arrangement (in which a primary insurer is insured for excess losses by a reinsurer):
Claim events occur 4 times per year on average, and the magnitude is sampled from a lognormal distribution. These claims are first submitted to the primary insurer, where the policy has a deductible and cap that are reset each year.
Deductibles paid by the customer and claims that exceed the cap are the responsibility of the customer (these amounts can be obtained from the Uncovered discrete change output or the Cumulative Uncovered output of the Insurance_Carrier element). Claims paid by the primary insurer are then submitted to the Reinsurer, where the contract has its own deductible and cap (this time over the life of the policy). Claims accepted by the second Insurance element are the responsibility of the Reinsurer, while claims that are not covered are the responsibility of the primary insurer.
The graph below shows the probability distributions of the cost of claims to the customer, primary insurer and reinsurer over five years:
Note that the customer has about an 80% probability of paying $2.5 million (the customer's annual deductible times five years), and the insurer has about a 90% probability of paying $10 million (the insurer's deductible, which is never reset).
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