Predicting The Financial Health Of Insurance Firms

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The main source of income for insurance firms is premium payments made by insurance policyholders. When
one enters an insurance cover co contract with any insurance firm, they are required to make payments called
premiums to the insurance firm for the insurance cover being offered. They are two types of premiums, they
are:

• Earned premiums - are premiums collected by an insurance company for the portion of a policy
  that has expired. It is what the insured party has paid for a portion of time in which the insurance
  policy was in effect, but has since expired.
• Unearned premiums - this is the premium amount that corresponds to the time period remaining
  on an insurance policy. In other words, it is the portion of the policy premium that has not yet been
  “earned” by the insurance company because the policy still has some time before it expires.

File Types:

• rev: Revenue Statements
• p_l: Profit and loss
• Life: Life Insurance
• Gen: Gen_BS

Problem Statement

More and more banks are getting into the insurance business. One of the ways they are doing this is by offering premium payment services on behalf of policyholders. An individual may be interested in an insurance policy but they do not have the funds to meet the premium payments. They can enter into an agreement with a bank, where the bank pays the premiums on their behalf to the insurance firm, while the individual repays the premium the bank paid to the insurance firm. Given that banks pay the premiums on
an annual basis, if the individual defaults on the premium repayments before the cover expires, the bank can claim the unearned premiums from the insurance firms. However, if an insurance firm is going under, it will not be able to refund the unearned premiums to the bank and as such, the bank will have lost on two fronts that are:

• The default on the premium repayments.
• The loss of the unearned premiums.

Therefore, the aim of this dataset is to develop an algorithm that can be used to model and predict the financial health of any insurance firm.

Credit: Data source