Abstract: It is necessary for insurance companies to establish an appropriate alarm system before the possible ruin. Having put forward the basic ideas of the alarm system for insurance companies and defined alarm times, numerical simulation of ruin distribution density and alarm times for both discrete and continuous loss distribution is given, multiple alarms for different initial capital and different capital replenishment programs are simulated, and principle of locating the aggregate capital to its business units is developed. The related results are helpful to the insurance company to improve the efficiency of capital construction funds, strategy of decentralization, and survival ability.

Key words: alarm system, capital allocation, ruin probability, risk management