The Theoretical and Methodological Approaches to Risk Analysis in Insurance and Reinsurance

Abstract

The article is aimed at further development of theoretical and methodological approaches to risk reinsurance in order to provide financial sustainability of an insurance company. An approach to risk analysis in insurance and reinsurance is proposed. The introduction of the concepts of complete and partial uncertainty and their relationship with the concept of risk made it possible to closer define the concept of risk and formulate it in the form of a financial and economic category. The term «risk» is proposed to be understood as a subjective estimation of an objective uncertainty, which describes the multiplicity of changes in the equilibrium stability of a socioeconomic system and is expressed in the form of a function of a random event. A somewhat closer defined concept of insurance risk is also proposed, which means a significant risk in its consequences for citizens and business entities, which can be assessed from the standpoint of the probability of occurrence of an insured event, quantitative amounts of possible damage and has signs of frequency and limitation in space and time. It is noted that clarification of the criteria of insurance risk in the general classification system of risks of an insurance organization allows assessing the need for reinsurance depending on the types of risk distribution. Analysis of features and dynamics of insurance risk, computation of insurance tariffs allows to substantiating the need for reinsurance for each type of insurance risk. It is proposed, to develop a model for analyzing the insurer’s reinsurance activity on the basis of the theory of decision-making under conditions of complete and partial uncertainty, to use the criteria of game theory: Wald criterion, Swidge criterion, Hurwitz criterion. To analyze the real financial sustainability, it is proposed to introduce adjustments to the existing methodological approaches, adding the objects transferred to reinsurance and the risk ratios present in the insurer’s activities; it is further proposed to take into account the impact of forms and types of reinsurance contracts on the financial sustainability of the company. The proposed theoretical and methodological provisions and conclusions can be used when accepting risks on the responsibility of the insurer and their subsequent redistribution.