Actuarial Estimation Of Technical Provisions’ Adequacy In Life Insurance Companies

When considering company doing business quality it is necessary to evaluate the amount of money that company can operate with. Insurance companies, regarding to all specifics of their business, have to evaluate all technical provisions of the company. Technical provisions, as part of the liabilities in insurers’ balance sheet, are basic measure of business operations quality and safety (i.e. they are the basic guarantee that all obligations to customers will be settled). Technical reserves are different in dealing with the life insurance business and non-life insurance business. This paper will treat only the means of technical provisions of life insurance. Technical provisions and their requested amount can be determined theoretically by whole range of actuarial methods, but in practice only few of them are identified as the most reliable, and those calculation principles are part of regulation institutions directives. Mentioned directives are different from one country to another, but in this paper special retrospective is given to European Union with appropriate comparisons with other relevant examples. In assessing the quality of insurance business, other that technical provisions’ level, it is important to estimate the insurers’ solvency margin. Solvency margin primary mission is to ensure sufficient amount of funds so that all insurers’ obligations can be reconciled properly. Solvency margin is the ratio between available and required amount of insurance funds. The amount of required funds is quantified measure of risk of all insurance contracts that are active if insurance company portfolio. If technical provision funds are being estimated by reliable actuarial methods, than it is prerequisite that the solvency margin will be determined properly. Appropriate solvency margin is an indicator of safety and good business operations of insurer.