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Risk Margin for a Non-Life Insurance Run-OffMario V. WuthrichETH Zurich, RiskLab, Department of Mathematics; Cass Business School, City University London Paul EmbrechtsSwiss Federal Institute of Technology Zurich Andreas TsanakasCity University London - Cass Business School August 15, 2011 Statistics & Risk Modeling, Forthcoming Abstract: For solvency purposes insurance companies need to calculate so-called best-estimate reserves for outstanding loss liability cash flows and a corresponding risk margin for non-hedgeable insurance-technical risks in these cashflows. In actuarial practice, the calculation of the risk margin is often not based on a sound model but various simplified methods are used. In the present paper we properly define these notions and we introduce insurance-technical probability distortions. We describe how the latter can be used to calculate a risk margin for non-life insurance run-off liabilities in a mathematically consistent way.
Keywords: claims reserving, best-estimate reserves, run-off risks, risk margin, market value margin, one-year uncertainty, claims development result, market-consistent valuation JEL Classification: G12, G18 Accepted Paper SeriesDate posted: August 15, 2011 ; Last revised: July 5, 2012Suggested CitationContact Information
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