Use of an Internal Model in a General Insurance Company: Focus on Economic Capital Allocation

321 Pages Posted: 14 Oct 2012

Date Written: September 12, 2012

Abstract

Capital allocation is an instrument for managing an insurance company. This is linked with three important fields of an insurance company: pricing, risk management and performance management. It is a tool for strategic management so as to decide to further invest in or discontinue a business line. The toolbox behind such an exercise contains coherent risk measures as well as coherent allocation principles. These constitutes the rigorous axiomatic part of the exercise, that may be relaxed for practical purposes. An application is proposed through an internal model approach, triggered by the frameworks of insurance current solvency regimes, namely United Kingdom (UK) Internal Capital Adequacy Standards (ICAS) and Solvency II. This application is dealing with the combination of Aumann-Shapley also known as Euler-gradient Capital allocation principles with VaR and TVaR.

Keywords: Value at Risk (VaR), Tail Value at Risk (TVaR), Coherent measure of risk, Coherent allocation of capital, Economic risk capital, Solvency II, Internal Capital Assessment (ICA), Internal model, Aumann-Shapley, Euler’s theorem

JEL Classification: C71, G11, G22, G31, G32

Suggested Citation

Zec, Nicolas, Use of an Internal Model in a General Insurance Company: Focus on Economic Capital Allocation (September 12, 2012). Available at SSRN: https://ssrn.com/abstract=2161308 or http://dx.doi.org/10.2139/ssrn.2161308

Nicolas Zec (Contact Author)

Allianz ( email )

20 place de Seine
Courbevoie, 92400
France
0033158855791 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
407
Abstract Views
2,064
rank
72,023
PlumX Metrics