Modern Actuarial Risk Theory

A ruin theory approach is the right framework for addressing the problem of insurance company bankruptcy according to Ronnie Loeffen.
His approach on the dynamics that lead insurance companies to ruin is original: he plans to extend the ruin model, traditionally limited to insurance risk processes only, to the financial side of companies. From the policyholders’ point of view, it is important for the company to remain solvent. Shareholders, on the other hand, are more concerned with receiving as much dividend income as possible, and the issue of bankruptcy is less important to them. However, dividend payouts reduce the amount of capital of the company and thus increase the likelihood of bankruptcy. In his research, Loeffen looked at both points of view. His results could help determine optimal reserves and dividend streams, as well as be useful in solvency discussions. They may also help with modeling extreme and unexpected behaviors using certain insurance models.