One-Year Change Methodologies for Fixed-Sum Insurance Contracts

Michel Dacorogna, Alessandro Ferriero and David Krief
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Alessandro Ferriero: Department of Mathematics, UAM, Campus de Cantoblanco, 28049 Madrid, Spain
David Krief: LPSM, Université Paris Diderot, 75013 Paris, France

Risks, 2018, vol. 6, issue 3, 1-29

Abstract: We study the dynamics of the one-year change in P&C insurance reserves estimation by analyzing the process that leads to the ultimate risk in the case of “fixed-sum” insurance contracts. The random variable ultimately is supposed to follow a binomial distribution. We compute explicitly various quantities of interest, in particular the Solvency Capital Requirement for one year change and the Risk Margin, using the characteristics of the underlying model. We then compare them with the same figures calculated with existing risk estimation methods. In particular, our study shows that standard methods (Merz–Wüthrich) can lead to materially incorrect results if the assumptions are not fulfilled. This is due to a multiplicative error assumption behind the standard methods, whereas our example has an additive error propagation as often happens in practice.

Keywords: one-year risk; Merz–Wüthrich; solvency II; solvency capital requirement; risk margin; fixed-sum insurance (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 (2)

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