Abstract

The examination of UPR (Unearned Premium Reserve), which accounts for a significant amount of REC (Contractual Engagement Reserves) in insurance matters, is a crucial component of actuarial and financial management in insurance companies. We propose a solution based on the Solvency II system that uses an internal model based on a stochastic differential equation in order to apply the new international standard IFRS’17 linked to insurance contracts. We use the Sim.DiffProc package to produce statistical trajectories of the model by sampling. The analysis focuses on the problem of censoring obstacles in the process. Based on the model parameters, we investigate the barrier’s sensitivity. Before the absorption barrier, we calculated the likelihood of ruin and the probability density of UPR life time.