1. The essence of insurable risks (2 h.)
Insurable vs. uninsurable risks. A simple model of diversifiable risks. Insurance as a financial service.
Ref.: Williams chap. 1 and 13.; Wiśniewski, lect.1.
2. Microeconomic theory of risk and insurance (4 h.)
Microeconomic theory of risk. Utility of the lottery. Expected utility theory vs. non-expected utility theories. Risk aversion. Insurance contract and optimal insurance coverage. Adverse selection and moral hazard in the insurance market. Ref.: Borch chap. 2.; Wiśniewski, lect. 2-3.
3. Organisation of the insurance market-place (3 h.)
The organisation of the insurance market-place. The structure of the global insurance market. Insurance companies and insurance intermediaries. Alternative risk markets and products. The Lloyd’s of London.. Ref.: Taylor chap. 1 and app. A; Huebner chap. 34 and 35; Wiśniewski, lect. 4-5.
4. Insurance premiums (4h.)
Premium calculation principles. Statistical measures vs. utility approach. The ruin-model approach. Net premiums vs. gross premiums. Practical methods of premium calculation. Premiums determined by Return on Equity.. Ref.: Foundations chap. 2; Taylor chap. 3; Williams chap. 14, Wiśniewski, lect. 6-7.
5. Technical reserves (4h.)
Reserves as a key factor of the insurer’s solvency. Premium reserves vs. claim reserves. How reserves are invested. Adequacy of insurance reserves ex ante and ex post. Ref.: Taylor chap. 2 and app. F; Foundations chap. 4, Wiśniewski, lect. 8-9.
6. Reinsurance (4 h.)
Insurer’s capacity to assume risks. Reinsurance vs. co-insurance. The goals reinsurance aims at. Facultative vs. obligatory reinsurance contracts. Proportional vs. non-proportional coverage. Financial reinsurance. Alternative reinsurance markets: securitization of insurance liabilities. Ref.: Taylor chap. 4; Foundations chap. 6; Phifer chap. 5-7. Wiśniewski, lect. 10-11.
7. Regulatory supervision and instruments (2 h.)
Reasons why insurance is regulated. The concept of the insurer’s solvency. The role of own capital and technical reserves in preserving solvency. The solvency margin and the minimum level of the capital. Other regulatory measures imposed on insurers. (2 h.). Ref.: Taylor chap. 5; Williams chap. 15, Wiśniewski, lect. 12
8. The European Solvency II reform (3 h.)
The aims of Solvency II. Capital adequacy requirements under SII: a new concept of the risk-related solvency margin. The new approach to regulatory supervision (pillar 2). Market transparency under SIII (pillar 3). Possible consequences of the SII reform. Ref.: Wiśniewski, lect. 13.
9. Insurance accounting and reporting (4 h.)
Distinctive features of insurance accounting. Assets and liabilities in the balance sheet. Technical vs. profit and loss account. The cash flow statement and the solvency statement. How to read the insurer’s financial reports. The crucial solvency ratios. Claim ratio, combined ratio and other efficiency ratios.. Ref.: Wiśniewski, lect. 14-15.
Type of course
The student identifies the essence of the insurance contract and recognizes basic constrains set on it. She/he understands how the insurable risks are diversified. He/she is acquainted with the organisation of the international insurance market. The student knows the economic role and determinants of main insurer’s activities: the pricing of insurance, compensating the claims, building the technical reserves and maintaining the solvency capital. He/she understands the role of reinsurance in diversification of risks. She/he knows the reasons for state regulation in the insurance markets and understands the main regulatory measures. He/she identifies the distinctive features of insurance accounting and understands the financial reports of insurance companies. The student recognizes the role insurance in the modern risk management run either in households or in companies.
The student can distinguish insurable risks from uninsurable ones. He/she is able to explain analytically the insurance contract by microeconomic models of risk aversion. She/he can calculate the insurance premium for some simple loss distributions and evaluate the technical reserves for specific set of assumptions. He/she is able to identify different types of reinsurance contracts and their impact on risk sharing between primary insurer and reinsurer. The student can understand and interpret the insurer’s financial reports and is able to evaluate basic solvency and efficiency ratios.
While understanding the insurance industry, the student may contribute to the public discussion wherever risk sharing is on debate. Thus he/she may strengthen the rational attitude toward the markets where risks are transferred.
KU05, KU06, KK01, KK03, KU04, KU03. KU02, KU01, KW03, KW02, KW01
The examination is composed of 2 analytical exercises to be solved and 1 or problems to be examined descriptively. Examination problems and exercises are presented in a separate document provided for students. More than 50% of total score are needed to pass the course.
Dorfman M.S. Introduction to Risk Management and Insurance. Englewood Cliffs 1994.
Foundations of Casualty actuarial science, CAS, New York 1990.
Huebner S.S.. Black K., Webb B.L. Property and Liability Insurance, Prentice Hall 1996.
Phifer R., Reinsurance Fundamentals. Wiley 1996.
Taylor J.M., General Insurance. Institute of Actuaries 1992.
Williams C.A., Smith M.L., Young P.C. Risk Manegement and Insurance, McGraw-Hill, 1995
Wiśniewski M., Insurance. Textbook, WNE UW 2018
Borch K. H., Economics of Insurance, North-Holland 1992
Information on level of this course, year of study and semester when the course unit is delivered, types and amount of class hours - can be found in course structure diagrams of apropriate study programmes. This course is related to the following study programmes:
Additional information (registration calendar, class conductors, localization and schedules of classes), might be available in the USOSweb system: