MODELLING AGGREGATE NON-LIFE UNDERWRITING RISK: STANDARD FORMULA VS INTERNAL MODEL

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Abstract

The main target of this paper is to analyse the risk profile of a multi-line non-life insurer. A risk theoretical simulation model is then applied with the aim to predict the risk capital regarding only premium risk. A systematic comparison has been performed between Risk Based Capital obtained by the application of an Internal Model and the corresponding Solvency Capital Requirement as provided by the Solvency II standard formula for different insurers according to dimension and risk distribution. Finally the paper discusses the dependence problem: losses from different line of business are linked by different approaches. At this regard the dependence effect on RBC is examined comparing the QIS aggregation formula (using correlation matrix) with Internal Model results. Furthermore different results are obtained applying either elliptical copula functions and approximation formula based on linear correlation. It s finally analysed the risk of assessing inappropriate parameters quantifying, through some sensitivity analyses, the effect on Capital Requirement of changes in some key parameters
Original languageEnglish
Pages (from-to)301-339
Number of pages39
JournalGIORNALE DELL'ISTITUTO ITALIANO DEGLI ATTUARI
VolumeLXXII
Publication statusPublished - 2012

Keywords

  • Aggregation and dependency
  • Calibration and Parameter Impact
  • Internal Model
  • Non-Life Insurance
  • Premium Risk
  • Solvency II Standard Formula

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