Bankruptcy Probability Analysis of PT XYZ Using a Heavy-Tail (Pareto) Discrete Surplus Model

Aliffatul Laila; Asrie Putri Janitha

doi:10.47194/orics.v6i4.420

Authors

Aliffatul Laila
aliffatul22001@mail.unpad.ac.id
Universitas Padjadjaran
Asrie Putri Janitha

Keywords:

Bankruptcy, Insurance, Surplus model, Heavy-tail, Pareto Distribution

Abstract

The insurance industry plays a strategic role in maintaining societal financial stability by providing protection mechanisms against unforeseen risks. However, the risk of bankruptcy remains a real threat when policyholder claims exceed the company's reserve funds and collected premiums. This necessitates a quantitative approach capable of projecting bankruptcy probability more accurately. This study is designed to analyze the bankruptcy probability of PT XYZ by utilizing a discrete surplus model based on the heavy-tail Pareto distribution. This model was selected due to its characteristics, which can effectively represent large, infrequent claims that nonetheless have a significant impact on the company's financial condition. The research data will be sourced from the company's financial reports and used in the bankruptcy probability modeling process employing the Pareto distribution approach. This research is expected to provide a theoretical contribution by enriching actuarial literature, particularly concerning the application of heavy-tail surplus models in bankruptcy risk analysis. It also aims to offer practical benefits for insurance companies in designing more comprehensive risk management strategies. Furthermore, the study's findings are hoped to provide valuable input for regulators in strengthening policyholder protection policies and supporting the stability of the national insurance industry. Keywords: Bankruptcy, Insurance, Surplus model, Heavy-tail, Pareto Distribution

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