Alarm system for insurance companies: A strategy for capital allocation

► An insurance company is required to keep capital for claim settlement. This work proposes a structure for alarm system based on modeled claim pattern that would facilitate starting with smaller initial capital and appropriately augmenting it at suitable 'alarm' times. ► Such alarm system naturally provides investment flexibility to investors in insurance firms. ► The work shows empirically as well as through theoretical bounds computed that the alarm system may be more effective in terms of reducing chance of ruin under certain interest regimes and for a fixed initial capital.