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FORECASTING THE DEVELOPMENT OF THE INSURANCE MARKET OF UKRAINE: INDETERMINISTIC APPROACH

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  • Сумський державний університет, Суми
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We present an analytical study of an insurance company. The company’s performance is modeled on a statistical basis. The predicted annual income of the company is evaluated in terms of insurance parameters namely the premium, the total number of insured, average loss claims etc. We restrict ourselves to a single insurance class the so-calledautorriobilrinsururmce. We obtain the corresponding risk as well as ruin probability in terms of premium. Furthermore, we obtain the optimal premium popt which maximizes the comany’s
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The article aiming at forecasting the insurance processes offers the application of the Markov chains theory and forecasts the development of the national insurance market with consideration of the influence of the current financial economic crisis; the necessity of creating a plan for the insurance market development and the measures of crisis overcoming are grounded.
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Insurance companies sell protection to policy holders against many types of risks: property damage or loss, health and casualties, financial losses, etc. In return for this risk protection, insurance companies receive a premium from the policy holder, which is used to cover expenses and the expected risk. For longer-term risk protections, part of the premiums are invested to get higher yields. Although the protection buyer mitigates the individual risk to the large and better diversified portfolio of the insurer, it does not mean that the risk is completely reduced since the insurer may default his obligations. Insurers need to have sufficient equity or buffer capital to meet their obligations in adverse conditions when their losses on the diversified portfolio exceed the expected losses. Ratings provide an assessment of the ability of the insurer to meet its obligations to policy holders and debt holders. In this paper, the relationship between financial ratios and the rating is analyzed for different types of insurance companies using advanced statistical techniques that are able to detect non-linear relationship. The resulting rating model approach is similar to the approach for a low default portfolio, which uses a common set of explanatory variables (such as capitalization, profitability, leverage and size) which is generally applicable for all insurance types, and is complemented with insurance type specific ratios. The resulting model is found to yield a good accuracy, with 75% of the model ratings differing at most one notch from the external rating.
Industry Outlook for the Insurance Market. Summary of the report's conclusions: MAPFRE Economics
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