How much we gain by surplus-dependent premiums -- asymptotic analysis of ruin probability

Corina Constantinescu, Zbigniew Palmowski, Jing Wang

Published 2021-01-09Version 1

In this paper, we build on the techniques developed in Albrecher et al. (2013), to generate initial-boundary value problems for ruin probabilities of surplus-dependent premium risk processes, under a renewal case scenario, Erlang (2) claim arrivals, and an exponential claims scenario, Erlang (2) claim sizes. Applying the approximation theory of solutions of linear ordinary differential equations developed in Fedoryuk (1993), we derive the asymptotics of the ruin probabilities when the initial reserve tends to infinity. When considering premiums that are {\it linearly} dependent on reserves, representing for instance returns on risk-free investments of the insurance capital, we firstly derive explicit formulas for the ruin probabilities, from which we can easily determine their asymptotics, only to match the ones obtained for general premiums dependent on reserves. We compare them with the asymptotics of the equivalent ruin probabilities when the premium rate is fixed over time, to measure the gain generated by this additional mechanism of binding the premium rates with the amount of reserve own by the insurance company.