Valuation portfolio in non-life insurance

Markus Buchwalder, Hans Bühlmann, Michael Merz and Mario Wüthrich

Scandinavian Actuarial Journal, 2007, vol. 2007, issue 2, 108-125

Abstract: The purpose of this paper is the construction of the Valuation Portfolio (VaPo) for a non-life insurance company. The VaPo represents the obligations of the insurer for the whole period of his insurance contracts. These obligations are not simply measured by a one-dimensional figure (as standard for reserves in practice), but are expressed as a portfolio of financial instruments. Hence, the actuarial reserves become multidimensional. The financial instruments in the VaPo are a properly chosen basis to represent the future cashflows resulting from the insurance contracts. In this setup, financial and technical risks are clearly separated. The financial fluctuations derive from the basis elements, the technical fluctuations are covered by an increased number of basis elements (VaPo protected against technical risks). We show how this protection can be calculated in the case of a non-life insurance company.

Date: 2007
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DOI: 10.1080/03461230701251455

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