Deriving the Minimal Amount of Risk Capital for P/L Insurance Companies Utilizing ALM

Journal of Risk (2013), 15(4), pp. 35-55

25 Pages Posted: 20 Feb 2012 Last revised: 29 Sep 2013

See all articles by Matthias Schmautz

Matthias Schmautz

Independent

Niklas Lampenius

University of Hohenheim - Faculty of Business, Economics and Social Sciences

Date Written: February 17, 2012

Abstract

We present a model for P/L insurance companies based on Asset-Liability-Management (ALM). We show analytically for multivariate normal distributed assets and claims that an overall minimum of the required risk capital can be obtained by refining the firm’s asset allocation when including a ruin probability constraint. We generalize our findings to non-normal claim distributions using Monte Carlo Simulation. Our results illustrate the advantage of asset-liability management over pure asset-management and indicate a potential problem when ignoring the dependency structure between assets and liabilities for the determination of the required risk capital. The approach provides guidelines for asset (and liability) allocation to minimize the required risk capital.

Keywords: asset-liability-management (ALM), internal risk model, portfolio optimization, risk capital

JEL Classification: G11, G22, G32

Suggested Citation

Schmautz, Matthias and Lampenius, Niklas, Deriving the Minimal Amount of Risk Capital for P/L Insurance Companies Utilizing ALM (February 17, 2012). Journal of Risk (2013), 15(4), pp. 35-55, Available at SSRN: https://ssrn.com/abstract=2007968

Matthias Schmautz

Independent ( email )

Niklas Lampenius (Contact Author)

University of Hohenheim - Faculty of Business, Economics and Social Sciences ( email )

Stuttgart, 70593
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
487
Abstract Views
2,049
rank
73,874
PlumX Metrics