Tail Risk in Commercial Property Insurance

28 Pages Posted: 25 Aug 2014

See all articles by Enrico Biffis

Enrico Biffis

Imperial College Business School

Erik Chavez

Imperial College London

Date Written: August 3, 2014

Abstract

We present some new evidence on the tail distribution of commercial property losses based on a recently constructed dataset on large commercial risks. The dataset is based on contributions from Lloyd's of London syndicates, and provides information on over three thousand claims occurred during the period 2000-2012, including detailed information on exposures. We use occupancy characteristics to compare the tail risk profiles of different commercial property exposures, and find evidence of substantial heterogeneity in tail behavior. The results demonstrate the benefits of aggregating granular information on both claims and exposures from different data sources, and provide warning against the use of reserving and capital modeling approaches that are not robust to heavy tails.

Keywords: commercial property insurance, exposure rating, heavy tails, tail index, tail regression

Suggested Citation

Biffis, Enrico and Chavez, Erik, Tail Risk in Commercial Property Insurance (August 3, 2014). Available at SSRN: https://ssrn.com/abstract=2486196 or http://dx.doi.org/10.2139/ssrn.2486196

Enrico Biffis (Contact Author)

Imperial College Business School ( email )

Imperial College London
South Kensington campus
London, SW7 2AZ
United Kingdom

Erik Chavez

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

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