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Reliability of Engineering Systems and Technological Risks by Vladimir Rykov

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3Risk Management

3.1. Insurance of risks and risk of insurance

3.1.1. Introductory remarks

One of the principal instruments of risk management is insurance of risks. In fact, it cannot change the risk characteristics (other action is needed for this); however, it can smoothen its different (especially economic) consequences. There are some financial institutions dedicated to this – insurance companies, which compensate (partially or fully) damages that result from the occurrence of risk events. Insurance companies create and possess some special funds for this purpose. This fund consists of the initial capital of the company, insureds’ (individuals or legal entity policyholders) payments (premiums) as a compensation for the transfer of some parts of risks to the insurer, as well as of the financial activity of the company. Thus, the insurer takes onto himself (partially or fully) the risk of the insured, as a result of which the risk of the insurer occurs.

One of the most important parts of risk theory deals with this type of risk; thus, this section is devoted to the description of this type of risk. This study is based on financial mathematics. Here we consider the basic notions and terms of actuarial and financial mathematics, in order to be independent of the special literature.

3.1.2. Basic notions

Actuarial science and practice takes an honorable place in contemporary investigations and education. One of its components (combined with economical and juridical disciplines) ...

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