Method for permanent adjustments of premium in non-life insurance

In determining premiums in non-life insurance there is no universal method. In this paper is applied Bühlmann-Straub model for determining credible premium in third-party vehicle insurance. Loss ratio is the ratio of total losses incurred in claims divided by the total premiums earned. This is an indicator of how well an insurance company is doing. This ratio reflects if companies are collecting premiums higher than the amount paid in claims or if it is not collecting enough premiums to cover claims. Loss ratios for vehicle insurance usually range from 40 % to 60 %. Companies that have high loss claims may be experiencing financial trouble. The overall loss ratio in the Slovak market of third-party vehicle insurance in 2011 increased slightly to 57.13 %. High loss ratio showed AXA – 83.21 %, Generali – 69.41 % and KOOPERATIVA VIG – 65.69 %. These three together have insurance in 2011, a significant proportion of insurance in the Slovak Republic, to 45.06 %. These facts are the reason why we decided to assess the adequacy of the insurance premium in seven companies which in 2011 had a market share of 94.35 % in the Slovak insurance market. Credible premium is determined as a linear combination of premiums, determined from the data on their own risk and premium determined on the basis of information from similar risks. Credible premium is a compromise between the individual premium, i.e. premium determined solely from its own data on the risk premium and the collective, determined from data on collective risk. The credibility factor takes the value from 0 to 1 and expresses credibility of own experience. The highest credibility factor is in Allianz-SP and KOOPERATIVA VIG, which had the highest market share vehicle insurance and thus most of their own data on claims