48th Actuarial Research Conference (ARC), Philadelphia, 31 July -3 August 2013
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Title: Dynamic Financial Analysis with Dependency Between Motor Own Damage
Insurance and Compulsory Motor Insurance - The Case of Turkey
Betül Zehra Karagül (graduate student, corresponding author)
Department of Actuarial Sciences
Hacettepe University,
06800, Ankara,Turkey
Fax: +90 312 297 79 98 /142
Tel: +90 312 297 61 60
E_mail: betul.zehra@hacettepe.edu.tr
Murat Büyükyazıcı (co-author)
Department of Actuarial Sciences
Hacettepe University,
06800, Ankara,Turkey
Fax: +90 312 297 79 98 /142
Tel: +90 312 297 61 60
E-mail: muratby@hacettepe.edu.tr
48th Actuarial Research Conference (ARC), Philadelphia, 31 July -3 August 2013
Dynamic Financial Analysis with Dependency between Motor Own Damage Insurance
and Compulsory Motor Insurance - The Case of Turkey
Betül Zehra Karagül, Murat Büyükyazıcı
Insurance companies can measure their ruin probability and default risk more realistically and
have strong management strategies with DFA.
Inherently for nonlife insurance occurrence time and severity of claims are more uncertain
than life insurance because of this reason DFA is a more important tool for nonlife insurance.
In literature there is not a unique DFA model and every company can construct their own
model and choose their own components. If there is any dependency between these
components this structure must be taken into consideration and be integrated in to the model
so more realistic result will be achieved. This has important implications for insurance
companies and regulators to take right decisions.
One of the most important components in DFA is claims. Lots of insurance classify their
claims data as lines of business. This necessitates investigating the dependency between the
lines and integrating this dependency in to financial analysis.
In this study, the purpose is to see the effects of correlation between motor own damage
insurance and compulsory motor insurance for Turkey on the insurer’s risk and return profile,
the default risk and the ruin probability. In accordance with this purpose we made a
simulation with 100.000 iterations in MATLAB via a DFA model that includes basic
components for a nonlife insurance company. The dependence structure was integrated in to
the model with copula concepts owing to the usefulness of copulas. Model parameters were
obtained with Turkey’s market and nonlife insurance data.
Simulation results show us the dependence between motor own damage insurance and
compulsory motor insurance have important effects on the insurer’s risk, return and
performance. So we can say insurance companies shouldn’t neglect the dependence between
the lines of business in their financial analysis.
Keywords: Dynamic Financial Analysis, copulas, nonlife insurance, simulation, dependency
between lines of business in insurance.
48th Actuarial Research Conference (ARC), Philadelphia, 31 July -3 August 2013
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