Risk Margin for a Non-Life Insurance Run-Off
The final version of this article has appeared as: Wuethrich M. V., Embrechts, P., Tsanakas, A. (2011), 'Risk margin for a non-life insurance run-off', Statistics & Risk Modeling, 28, p. 299-317.
Posted: 15 Aug 2011 Last revised: 3 Jan 2014
Date Written: August 15, 2011
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
Suggested Citation: Suggested Citation