Actuarial Improvements of Standard Formula for Non-life Underwriting Risk

  • Gian Paolo Clemente
  • Nino Savelli
Chapter

Abstract

Solvency II Directive introduced a new framework in order to develop new risk management practices to manage risk and to define a minimum capital requirement. To this aim, Commission Delegated Regulation provided the final version of the standard formula. Capital requirement is obtained via a modular structure where each source of risk must be first measured and then aggregated under a linear correlation assumption. As the results of main Quantitative Impact Studies have shown, premium and reserve risks represent a key driver for non-life insurers. In this regard, we focus here on the valuation of the capital requirement for this specific sub-module. Some inconsistencies of the approach provided by Solvency II will be highlighted. We show that some assumptions of the standard formula may lead to an underestimation of the capital requirement for small insurers.

Keywords

Solvency II Premium and reserve risk Capital requirement Size factor 

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Copyright information

© The Author(s) 2017

Authors and Affiliations

  • Gian Paolo Clemente
    • 1
  • Nino Savelli
    • 1
  1. 1.Department of Mathematics, Finance and EconometricsCatholic UniversityMilanItaly

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