Actuarial Methods in Reinsurance

Insurance is one of the largest financial institution around the world, that helps companies and states to cope with difficult financial situations which have been occurred by an event or accumulation of events, most often by some natural disasters or other catastrophes. This topic is especially relevant and interesting nowadays due to rapid growth and growing capital inflows into the insurance market (in 2016 the average annual growth rate of the insurance market grew by 15%; in 2017 it grew by 10%) and with the development of insurance the reinsurance market develops too. The main purpose of reinsurance is to spread risks between insurance companies and to enable them to continue their activity even in a difficult financial situation. The purpose of this study is to forecast losses of the insurance company and the necessity of applying reinsurance by modeling the distribution of quantity of insurance events caused and modeling the amount of losses for the portfolio of insurance contracts in non-life insurance. In this study, a portfolio of insurance contracts for property of legal entities (approximately 40,000 insurance contracts) was taken and the quantity of insurance events caused and the amount of losses for the portfolio was modeled to calculate the probability of sufficiency of the insurance fund. Further, proceeding from the probability of sufficiency, a conclusion was made about the application of reinsurance for this portfolio. As a result of this research, the result was obtained in 100% probability of sufficiency of the company's insurance fund in the line of property insurance of legal entities. Also, the forecast showed a drop in the number of major losses, as well as the total number of losses in the portfolio. Thus, in this particular example, the applicability of reinsurance is not required.