Assessment of Risk Function Using Analytical Network Process

The concept of this paper is to perform the improvement of the risk function analysis, assessment and management with the aim to ensure a more sensitive and sophisticated risk coverage in accordance with the Solvency II regime requirements. The authors have offered an approach of risk function implementation and management corresponding with the Solvency II directive framework by integrating Analytical Network process into decision – making process of an insurance company. Analytical Network process is the combination of SWOT analysis designed to evaluate an insurance company’s activity and choice of strategy with the purpose to ensure further successful development and financial stability. Analytical Network process allows measuring the dependencies and feedbacks among decision elements and strategic factors in the hierarchical or non-hierarchical structures; thus, it might be used within the analysis of complicated and sensitive interrelationships between decision levels and attributes. The most valuable advantage of using Analytical Hierarchy process, in insurance is the possibility to include tangible and intangible strategic factors and elements into the decision-making process of an insurance company by applying specified functions or fields steering, analysis and management. Moreover, the authors have prepared the case study about the practical usage of Analytical Network process through the example of one non-life insurance company. In the case study the authors have emphasized the most preferable strategy through a detailed analysis of risk function and by using Analytical Network process. According to the authors, Analytical Network process is considered to be a part of the risk culture of an insurance company, since it helps to increase the employees’ knowledge of risk nature and its influence on the development and results of an insurance company. In order to achieve the stated objective, the authors use theoretical and methodological analysis of the scientific literature, as well as analytical, comparative, mathematical and statistical methods with the purpose to study the elements of an insurance company’s risk function evaluation