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Title:
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A correlation sensitivity analysis of non-life underwriting risk in solvency capital requirement estimation
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Author:
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Bermúdez, Lluis; Ferri, Antoni; Guillén, Montserrat
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Other authors:
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Xarxa de Referència en Economia Aplicada (XREAP) |
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Abstract:
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This paper analyses the impact of using different correlation assumptions between lines of business when estimating the risk-based capital reserve, the Solvency Capital Requirement (SCR), under Solvency II regulations. A case study is presented and the SCR is calculated according to the Standard Model approach. Alternatively, the requirement is then calculated using an Internal Model based on a Monte Carlo simulation of the net underwriting result at a one-year horizon, with copulas being used to model the dependence between lines of business. To address the impact of these model assumptions on the SCR we conduct a sensitivity analysis. We examine changes in the correlation matrix between lines of business and address the choice of copulas. Drawing on aggregate historical data from the Spanish non-life insurance market between 2000 and 2009, we conclude that modifications of the correlation and dependence assumptions have a significant impact on SCR estimation. |
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Publication date:
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2011-09 |
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Subject(s):
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Risk (Insurance)
Insurance
Monte Carlo method |
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Subject (UDC):
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33 - Economia
336 - Finances. Banca. Moneda. Borsa |
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Subject(s):
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Assegurances
Risc (Assegurances)
Mètode de Montecarlo |
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Rights:
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Aquest document està subjecte a una llicència d'ús de Creative Commons, amb la qual es permet copiar, distribuir i comunicar públicament l'obra sempre que se'n citin l'autor original, la universitat i la xarxa i no se'n faci cap ús comercial ni obra derivada, tal com queda estipulat en la llicència d'ús (http://creativecommons.org/licenses/by-nc-nd/2.5/es/) |
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Pages:
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30 p. |
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Document type:
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Working Paper |
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Share:
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