Possibilistic Ruin Thresholds for Pricing Catastrophe Insurance

The pricing of property/casualty insurance for widespread, catastrophic events (windstorms, flood, terrorism) is an effort fraught with uncertainty. Critical is the issue of how high premiums should be to prevent insured losses from exceeding the insurers capacity to pay claims. Known as the ruin problem, it is usually addressed in terms of exact thresholds based on precise probabilities of loss. In a complex and uncertain environment, ruin thresholds can not be determined with precision. We suggest here that an interpretation of ruin threshold in terms of possibilistic fuzzy sets represents a more realistic, and useful, approach to pricing catastrophic insurance