Econometric model of non-life technical provisions: the Czech insurance market case study

The paper introduces and discusses a complex econometric model of non-life technical provisions based on the Czech non-life insurance market data. Selected economic-actuarial relations among given insurance variables are described by means of the dynamic linear system of simultaneous equations used in econometrics. In particular, the provision for outstanding claims, the provision for unearned premium, the other (marginal) technical provisions, the acquisition and administrative expenses, the benefit expenses, and their mutual interactions are studied in detail. The suggested simultaneous equations model is estimated, statistically verified, and interpreted with special regard to the actuarial point of view. The proposed modelling scheme can be further employed for prognosing the considered non-life technical provisions. Particularly, such forecasts can be taken into account by non-life insurance companies in their internal calculations (e.g. for financial planning purposes, for testing the sufficiency of non-life technical provisions, or for liability adequacy tests LAT) or by an insurance regulator or supervisory authority (e.g. for performing stress tests). Alternatively, this approach might motivate development of internal models applicable in the Solvency II framework. Both deterministic and randomly generated scenarios are analysed which can deliver relevant outputs for formulating crucial recommendations and conclusions.