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Economic Cost Of Ruin


An enhancement to the probability of ruin concept (and thus shortfall risk) in which the severity of ruin is also reflected. Technically, it is the expected value of the shortfall. In an analogy to bond rating, it is comparable to considering the salvage value of a bond in addition to the probability of default. For insurance companies, the equivalent term is expected policyholder deficit (EPD), and represents the expected shortage in the funds due to policyholders in the event of liquidation.

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