Use of the Kaplan-Meier Estimator in Actuarial Science

Patrícia TEPLANOVÁ - Michal ZÁVODNÝ

https://doi.org/10.53465/EDAMBA.2022.9788022550420.481-492

 

Abstract: There are many reasons why an insured person lapses (cancels) his policy. Lapse risk is one of the main risks, which is also defined in Directive Solvency II. Lapse analysis can be performed by various statistical methods. In this paper, we illustrate the possibility of using survival analysis to calculate the lapse ratio. Survival analysis does not have to be used only in medical research but nowadays finds application also in economics e.g., actuarial science. We focus on the Kaplan-Meier estimator, the most used method of modeling survival times. In practice, not every insurance policy has to lapse, so survival times from these policies should be right-censored. The Kaplan-Meier method allows to include these censored observations in the model. We use R programming language to calculate Kaplan-Meier estimation for survival times and to plot survival functions. Since the Kaplan-Meier model is univariate model, we focus on the impact of sex on insurance policy lapses.

Keywords: survival analysis, Kaplan-Meier estimator, R programming language

JEL classification: C14, G22

Fulltext: PDF

Online publication date: 3 March 2023

ISBN: 978-80-225-5042-0

Publisher: University of Economics in Bratislava

Pages: 481-492

 

To cite this proceedings paper (STN ISO 690 and 690-2):

TEPLANOVÁ, P., ZÁVODNÝ, M. 2023. Use of the Kaplan-Meier estimator in actuarial science. In LÜLEYOVÁ, A. (ed.). EDAMBA 2022: Conference Proceedings. Bratislava: University of Economics in Bratislava, 2023. ISBN 978-80-225-5042-0, pp. 481-492. https://doi.org/10.53465/EDAMBA.2022.9788022550420.481-492