The Effect of Non-Proportional Reinsurance: A Revision of Solvency II Standard Formula

Gian Paolo Clemente
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Gian Paolo Clemente: Department of Mathematics, Finance and Econometrics, Università Cattolica del Sacro Cuore, Largo Gemelli 1, 20123 Milano, Italy

Risks, 2018, vol. 6, issue 2, 1-13

Abstract: Solvency II Standard Formula provides a methodology to recognise the risk-mitigating impact of excess of loss reinsurance treaties in premium risk modelling. We analyse the proposals of both Quantitative Impact Study 5 and Commission Delegated Regulation highlighting some inconsistencies. This paper tries to bridge main pitfalls of both versions. To this aim, we propose a revision of non-proportional adjustment factor in order to measure the effect of excess of loss treaties on premium risk volatility. In this way, capital requirement can be easily assessed. As numerical results show, this proposal appears to be a feasible and much more consistent approach to describe the effect of non-proportional reinsurance on premium risk.

Keywords: Solvency II; premium risk capital requirement; non-proportional reinsurance; collective risk models (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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