Optimal Economic Capital and Investment: Decisions for a Non-life Insurance Company

Catherine Bruneau () and Sélim Mankai ()
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Catherine Bruneau: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Sélim Mankai: EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper focuses on the optimal program of a non life insurance company which maximizes an expected risk ajusted return on capital (RAROC) criterium under a conditional value at risk (CVaR) shortfall constraint, by simultaneously choosing the best allocation of her portfolio and the best level of her capital. A solution is provided by refering to the framework of Concave Convex Fractional programs ( CCFP). The risk the company is facing with jointly comes from the financial assets and from the potential losses, whose dependence structure is taken into account through copulas. The methodology is applied to real data of a French non life insurance company. Using Monte Carlo simulations, we determine the optimal solution and we implement sensitivity analyses.

Keywords: Portfolio allocation; Economic capital; Shortfall constraint; Conditional Value at Risk; Copula; Concave Convex Fractional Program; Non Life Insurance (search for similar items in EconPapers)
Date: 2012-07
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Published in Bankers Markets & Investors : an academic & professional review, 2012, 119, pp.19-30

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00665516

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