The Impact of Reinsurance Strategies on Capital Requirements for Premium Risk in Insurance

Gian Paolo Clemente, Nino Savelli and Diego Zappa
Additional contact information
Gian Paolo Clemente: Department of Mathematics, Finance and Econometrics, Università Cattolica del Sacro Cuore, 20123 Milano, Italy
Nino Savelli: Department of Mathematics, Finance and Econometrics, Università Cattolica del Sacro Cuore, 20123 Milano, Italy
Diego Zappa: Department of Statistical Sciences, Università Cattolica del Sacro Cuore, 20123 Milano, Italy

Risks, 2015, vol. 3, issue 2, 1-19

Abstract: New risk-based solvency requirements for insurance companies across European markets have been introduced by Solvency II and will come in force from 1 January 2016. These requirements, derived by a Standard Formula or an Internal Model, will be by far more risk-sensitive than the required solvency margin provided by the current legislation. In this regard, a Partial Internal Model for Premium Risk is developed here for a multi-line Non-Life insurer. We follow a classical approach based on a Collective Risk Model properly extended in order to consider not only the volatility of aggregate claim amounts but also expense volatility. To measure the effect of risk mitigation, suitable reinsurance strategies are pursued. We analyze how naïve coverage as conventional Quota Share and Excess of Loss reinsurance may modify the exact moments of the distribution of technical results. Furthermore, we investigate how alternative choices of commission rates in proportional treaties may affect the variability of distribution. Numerical results are also figured out in the last part of the paper with evidence of different effects for small and large companies. The main reasons for these differences are pointed out.

Keywords: capital requirement for premium risk; collective risk model; reinsurance strategies; Solvency II (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.mdpi.com/2227-9091/3/2/164/pdf (application/pdf)
https://www.mdpi.com/2227-9091/3/2/164/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:3:y:2015:i:2:p:164-182:d:50635

Access Statistics for this article

Risks is currently edited by Mr. Claude Zhang

More articles in Risks from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().