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Transfer pricing in the insurance market

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  • Costin A. ISTRATE

    (Bucharest University of Economic Studies, Romania)

Abstract

Insurance is one area where tariffs are set (at least theoretically) depending on the risks covered. In practice, charges and insurance premiums are influenced by market pressures and the possible association with banking products - ,,bank-assurance activities” - or with investment instruments (such as unit-linked products in life insurance). Insurance companies can reduce exposures to risks it has assumed through a coherent policy for reinsurance, meaning they can choose ceding these risks by reinsurance companies, or may opt for participation in coinsurance contracts along with other insurance companies (risk is adjusted for the share of each company). A special case is adjusting risks assumed by concluding reinsurance treaties with insurance-reinsurance companies, which are shareholders or have interests in other insurance companies or affiliated insurance companies (members of the same group). Setting reinsurance premiums in this case must be made on the one hand respecting the principles of underwriting the actuarial basis, in order to calibrate the risk retained by the insurance company, on the other hand respecting the guidelines set at international level in the field of transfer pricing. The main risk in case of transfer prices, represents a risk of a fiscal nature, which can affect the financial position of the insurance company in case of breach of the principles relating to, because in case of exaggerated reinsurance policy - by providing reinsurance premiums calibrated with market - the insurance company can record long-term financial losses and also decreases in key indicators of liquidity and solvency.

Suggested Citation

  • Costin A. ISTRATE, 2016. "Transfer pricing in the insurance market," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(Special(I), pages 35-46.
    • Handle: RePEc:agr:journl:v:xxiii:y:2016:i:special(i):p:35-46
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