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Internal Model For Measuring Premium Risk In Determining Solvency Of Non-Life Insurers

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  • Jelena Kočović
  • Marija Koprivica

Abstract

Under contemporary dynamic approaches the solvency of insurance companies is determined by measuring the risks that threaten their business. This paper presents an internal model for measuring premium risk when evaluating the solvency of non-life insurers. The solvency capital requirement is calculated on the basis of a compound distribution of insurance portfolio aggregate claim amount, resulting from combining separately modelled claim frequency and severity distributions, with prior verification of earned technical premium sufficiency. The practical application of the model is illustrated by a case study of a specific non-life insurance company in Serbia. The research findings show that the dynamic model of premium risk measurement results in larger capital requirement and contributes to a more reliable assessment of insurers’ solvency than the static model. This proves the inadequacy of the existing fixed ratio model and stresses the need for changes in the current methodology of determining the solvency of insurance companies in Serbia.

Suggested Citation

  • Jelena Kočović & Marija Koprivica, 2018. "Internal Model For Measuring Premium Risk In Determining Solvency Of Non-Life Insurers," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 63(217), pages 99-128, April – J.
    • Handle: RePEc:beo:journl:v:63:y:2018:i:217:p:99-128
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    References listed on IDEAS

    as
    1. Bermúdez, Lluís & Ferri, Antoni & Guillén, Montserrat, 2013. "A Correlation Sensitivity Analysis Of Non-Life Underwriting Risk In Solvency Capital Requirement Estimation," ASTIN Bulletin, Cambridge University Press, vol. 43(1), pages 21-37, January.
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    More about this item

    Keywords

    non-life insurance; premium risk; solvency margin; internal model; Solvency II;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law

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