Ruin probability of insurance companies in Nigeria using model with economic environment: Pre and post capitalization analysis

Abstract

The behavior of the reserve of insurance firms in Nigeria from 1996 to 2011 is investigated using ruin model with economic environment. The investment portfolios are classified according to the types of returns expected: Investments with fixed returns and investments with stochastic returns. Against the usual ways of monitoring the performances of insurance companies using regression and correlation, a risk reserve model in economic environment is used. The ruin probability is determined from the integro-differential equation for the model. The results show that there has been a positive growth in the reserve before recapitalization, though the rate of growth of the reserve after recapitalization is higher.  The total probability of ruin shows that there is a drop in the probability of ruin after recapitalization. Also, the ruin probabilities show that companies are more liable to get ruined from investment than from claims after the recapitalization against the converse before recapitalization.