Classify the states and classes of the chain in Example 2.2-1.

Example 2.2-1

Consider a medical insurance model with four states for an insured: healthy, sick, ceased paying, deceased. Suppose that for a particular group of customers, the matrix

gives transition probabilities corresponding to annual transition periods. For example, 0.1 is the probability that an insured being sick at the beginning of a year will recover by the beginning of the next year. State 3 (“deceased”) is naturally absorbing. So is state 2 (“ceased paying”) if we assume that in this case, the contract is terminated.