Enhancing Insurer Portfolio Resilience and Capital Efficiency with Green Bonds: A Framework Combining Dynamic R-Vine Copulas and Tail-Risk Modeling

Thitivadee Chaiyawat and Pannarat Guayjarernpanishk ()
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Thitivadee Chaiyawat: Chulalongkorn Business School, Chulalongkorn University, Bangkok 10330, Thailand
Pannarat Guayjarernpanishk: Department of Mathematics, Faculty of Science, Khon Kaen University, Khon Kaen 40002, Thailand

Risks, 2025, vol. 13, issue 9, 1-34

Abstract: This study develops an integrated risk modeling framework to assess capital adequacy and optimize portfolio performance for Thai life and non-life insurers. Leveraging ARMA–GJR–GARCH models with skewed Student-t innovations, extreme value theory, and dynamic R-vine copulas, the framework effectively captures volatility, tail risks, and evolving asset interdependencies. Utilizing daily data from 2014 to 2024, the models generate value-at-risk forecasts consistent with international standards such as Basel III’s 10-day 99% VaR and rolling Sharpe ratios for portfolios integrating green bonds compared to traditional asset allocations. The results demonstrate that green bonds, fixedincome instruments funding renewable energy and other environmental projects, significantly improve risk-adjusted returns and have the potential to reduce capital requirements, particularly for life insurers with long-term sustainability mandates. These findings underscore the importance of portfolio-level capital assessment and support the proactive integration of ESG considerations into supervisory investment guidelines to enhance financial resilience and align the insurance sector with Thailand’s sustainable finance agenda.

Keywords: green bonds; dynamic R-vine copulas; extreme value theory; insurance capital adequacy; value-at-risk (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2025
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