A general modelling approach to the interactions between premiums and insured export credit
The following issue frequently arises when insuring export credits: a policy holder pays a premium to the insurer for their insurance policies, but the premium is financed through the export credit to be insured (capitalisation of the premium), and this changes the premium calculation basis. This creates a feedback mechanism that needs to be taken into account when modelling the premiums.
A unified approach to modelling premium-capital interactions
D-Fine and SERV’s premium experts have now developed a general modelling approach that can represent the feedback mechanism across the entire life cycle of an export credit. This whitepaper demonstrates that the capitalisation and decapitalisation of premiums are both different manifestations of the same underlying mathematical structure.
Together with the concept of the specific risk premium (see SERV’s whitepaper “Dealing With The Non-Marketable” from 2024), this creates the basis not only for modelling modifications to export credits but also for modelling the resulting premium adjustments, which may, in turn, be influenced by the capitalisation or decapitalisation of the premiums.
Another milestone for the approach to premium pricing
In practice, the general modelling approach has helped to digitalise the calculation of insurance premiums in a (semi)-automated software application. A proposal is available to experts for how the future approach to premium pricing can be further developed on the basis of a general modelling approach
Download the SERV whitepaper for free.
