An application of time series methods to financial guarantee insurance

Abstract

This article comprises a summary of a study made in Finland concerning solvency issues in financial guarantee insurance. The time fluctuation of bankruptcy intensity is analyzed by fitting Box-Jenkins type models to empirical data, and this fluctuation is combined with the variation in the number of claims and the individual claim sizes, based on empirical claim size distribution. The estimated models are used to evaluate, for example, the variance of the claims ratio and of the solvency ratio of the financial guarantee insurer. The variation range of the solvency ratio and the appropriate premium level are discussed with numerical examples.