Program for determination the effective strategy of insurance company under underating cycle

This article presents architecture of the decision support system, which is used by property and liability insurance companies for determination of optimal strategy under underwriting cycle. Underwriting cycle influence all aspects of insurance business. It lowers the efficiency of investments and underwriting by inclusion of uncounted volatility in underwriting results. The strategy of the insurance company comprises four aspects: choice of insurance portfolio, choice of tariff policy based on underwriting cycle values, choice of reinsurance policy and investment strategy. To solve the problem of effective strategy determination for the insurance company, we have created the decision support system, which is able to find the optimal strategy of the insurance company for different market conditions. The main part of the system described in this paper, combines imitation model of competitive behavior of the insurance company, dynamic financial analysis model, which is used for gaining financial performance estimates, and optimization module. Imitation model performs discrete simulation of events. It tests the strategy and analyses it inside dynamic financial analysis module. For each predefined scenario with the given set of economic and actuarial parameters, the model forecasts underwriting cycle values, evaluates rationally formed tariff rates, calculates the numbers of products in an insurance portfolio. Optimization task is the profit maximization by choosing the values of control variables associated with four components of a strategy. Then optimization of investment allocation and reinsurance coverage is performed to achieve maximum profit while meeting financial performance standards. If these results are unsatisfactory, then other control parameters are optimized using the combination of particle swarm method and optimal budget allocation technique until financial performance indicators meet standards. We show some examples of the decision support system application and the results of optimization of different parts of the strategy. Application of the decision support system allows to evaluate capital adequacy for the specific strategy under underwriting cycle. It also helps to optimize the part of coverage transferred to the reinsurance company and choose the optimal portfolio of insurance products. Next thing, to select the specific tariff policy for each line of business. Finally, to test estimated solution in the model of competitive insurance market.

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