Fire Risk Sub-Module Assessment under Solvency II. Calculating the Highest Risk Exposure

Elena Badal-Valero, Vicente Coll-Serrano and Jorge Segura-Gisbert
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Elena Badal-Valero: Department of Business Finances, School of Economics, University of Valencia, 46022 Valencia, Spain
Jorge Segura-Gisbert: Department of Applied Economics, School of Economics, University of Valencia, 46022 Valencia, Spain

Mathematics, 2021, vol. 9, issue 11, 1-20

Abstract: The European Directive 2009/138 of Solvency II requires adopting a new approach based on risk, applying a standard formula as a market proxy in which the risk profile of insurers is fundamental. This study focuses on the fire risk sub-module, framed within the man-made catastrophe risk module, for which the regulations require the calculation of the highest concentration of risks that make up the portfolio of an insurance company within a radius of 200 m. However, the regulations do not indicate a specific methodology. This study proposes a procedure consisting of calculating the cluster with the highest risk and identifying this on a map. The results can be applied immediately by any insurance company, covered under the Solvency II regulations, to determine their maximum exposure to the catastrophic man-made risk of fire, instantly providing them with the necessary input for calibration of the solvency capital requirement.

Keywords: fire risk; man-made catastrophe; Solvency II; R programming language; cluster of the highest risk (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2021
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