Risk Factor Contributions and Capital Allocation in Life Insurance in the Solvency II Framework

  • Massimiliano Menzietti
  • Marco Pirra
Chapter

Abstract

Quantification of capital requirements is a critical issue for any insurer. Solvency is assessed through the regulatory capital, but, in practice, insurance companies usually hold higher levels of economic capital assessed using risk-based models that allow for any type of risk the institution deals with. Once the economic capital of a company is determined, it should be allocated down to lower levels, such as business units, lines and products for a number of purposes and this allocation of capital has crucial importance. This chapter deals with some key aspects related to risk quantification and capital allocation in life insurance. Portfolios composed by different insurance contracts, with both life and death benefits, are investigated. The numerical results obtained explain that the features and benefits of a contract influence not only the assessment of the total risk but also its allocation to single factors, showing that such a risk measurement methodology could be a useful tool for new products improvement and management, in adherence to the principles stated by the Solvency II directive, specifically with respect to the own risk and solvency assessment (ORSA) and the implementation of internal models.

Keywords

Allocation Risk factor contributions Life insurance Risk management 

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Copyright information

© The Author(s) 2017

Authors and Affiliations

  • Massimiliano Menzietti
    • 1
  • Marco Pirra
    • 1
  1. 1.Department of Statistics, Economics and FinanceUniversity of CalabriaCosenzaItaly

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