Estimating the Volatility of Non-Life Premium Risk Under Solvency II: Discussion of Danish Fire Insurance Data

Rocco Roberto Cerchiara and Francesco Acri
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Rocco Roberto Cerchiara: Department of Economics, Statistics and Finance “Giovanni Anania”, University of Calabria, 87036 Arcavacata di Rende (CS), Italy
Francesco Acri: Independent Researcher, 20135 Milan, Italy

Risks, 2020, vol. 8, issue 3, 1-19

Abstract: We studied the volatility assumption of non-life premium risk under the Solvency II Standard Formula and developed an empirical model on real data, the Danish fire insurance data. Our empirical model accomplishes two things. Primarily, compared to the present literature, this paper innovates the fitting of Danish fire insurance data using a composite model with a random threshold. Secondly we prove, by fitting the Danish fire insurance data, that for large insurance companies the volatility of the standard formula is higher than the volatility estimated with internal models such as composite models, also taking into account the dependence between attritional and large claims.

Keywords: composite models; copula functions; Fast Fourier Transform; dependent random variables; volatility; 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: 2020
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