Estimating the Cost of Commercial Airlines Catastrophes - A Stochastic Simulation Approach. Romel Salam, FCAS, MAAA June 2003. Why a Stochastic Model?. Airline risks are shared vertically by any number of primary players.
Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.
Romel Salam, FCAS, MAAA
Better reflects current environment in terms of exposures, frequency, fleet composition, liability and hull costs, passenger loads.
Provides results that are statistically stable even for layers exposed to rare events.
Allows one to better understand all the components in the loss process.
More conducive to pricing covers with a lot of bells and whistles.
Traditional Experience Rating
May not reflect current environment.
Results not statistically stable, especially for layers exposed to rare events.
No attempt to piece together loss components.
Not very good for pricing covers with lots of contingent features.Why a Stochastic Model?
Choosing a frequency model
Picking an exposure base:
b) Miles/Kilometers Flown
c) Hours Flown
Accounting for Trend in Frequency
Modeling the number of aircrafts involved in an accident.
Passenger Liability Cost
Third Party Liability Cost
The r’s are random draws from the F’s.
Let the s’s = 1 when the r’s fall in the confidence
interval, 0 otherwise.
If our Hypothesis is true, then