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Optimizing Claims Fluctuation Reserves

Christoph Haehling Von Lanzenauer and Don D. Wright
Management Science
Vol. 23, No. 11 (Jul., 1977), pp. 1199-1207
Published by: INFORMS
Stable URL: http://www.jstor.org/stable/2630659
Page Count: 9
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Optimizing Claims Fluctuation Reserves
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Abstract

Many group insurance programs are characterized by experience rating features which imply that a surplus resulting from favorable experience belongs to the group, while the administering insurance company is to be reimbursed for a deficit resulting from unfavorable experience. Due to the volatile nature of claims, a claims fluctuation reserve is frequently established in order to reduce frequent rebates or premium adjustments resulting from surplus or deficit positions. A model is presented for resolving the rebate question and determining the design parameters of a claims fluctuation reserve. The model is formulated for nonstationary conditions and uses the first passage time concept as part of a chance constraint criterion. Results of an actual application are reported.

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