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Risk margin for a non-life insurance run-off

Author

Listed:
  • Wüthrich Mario V.

    (ETH Zürich, Department of Mathematics, Zürich, Schweiz)

  • Embrechts Paul

    (ETH Zürich, Department of Mathematics, Zürich, Schweiz)

  • Tsanakas Andreas

    (City University, Cass Business School, London EC1Y 8TZ, Großbritannien)

Abstract

For solvency purposes insurance companies need to calculate so-called best-estimate reserves for outstanding loss liability cash flows and a corresponding risk margin for non-hedgeable insurance-technical risks in these cash flows. In actuarial practice, the calculation of the risk margin is often not based on a sound model but various simplified methods are used. In the present paper we properly define these notions and we introduce insurance-technical probability distortions. We describe how the latter can be used to calculate a risk margin for non-life insurance run-off liabilities in a mathematically consistent way.

Suggested Citation

  • Wüthrich Mario V. & Embrechts Paul & Tsanakas Andreas, 2011. "Risk margin for a non-life insurance run-off," Statistics & Risk Modeling, De Gruyter, vol. 28(4), pages 299-317, December.
    • Handle: RePEc:bpj:strimo:v:28:y:2011:i:4:p:299-317:n:6
    DOI: 10.1524/strm.2011.1096
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    References listed on IDEAS

    as
    1. Salzmann, Robert & Wüthrich, Mario V., 2010. "Cost-of-Capital Margin for a General Insurance Liability Runoff," ASTIN Bulletin, Cambridge University Press, vol. 40(2), pages 415-451, November.
    2. Artzner, Philippe & Eisele, Karl-Theodor, 2010. "Supervisory Insurance Accounting: Mathematics for Provision – and Solvency Capital – Requirements," ASTIN Bulletin, Cambridge University Press, vol. 40(2), pages 569-585, November.
    3. Denuit Michel & Dhaene Jan & Goovaerts Marc & Kaas Rob & Laeven Roger, 2006. "Risk measurement with equivalent utility principles," Statistics & Risk Modeling, De Gruyter, vol. 24(1), pages 1-25, July.
    4. Bühlmann, Hans & Delbaen, Freddy & Embrechts, Paul & Shiryaev, Albert N., 1998. "On Esscher Transforms in Discrete Finance Models," ASTIN Bulletin, Cambridge University Press, vol. 28(2), pages 171-186, November.
    5. Denuit Michel & Dhaene Jan & Goovaerts Marc & Kaas Rob & Laeven Roger, 2006. "Risk measurement with equivalent utility principles," Statistics & Risk Modeling, De Gruyter, vol. 24(1), pages 1-25, July.
    6. Tsanakas, Andreas & Christofides, Nicos, 2006. "Risk Exchange with Distorted Probabilities," ASTIN Bulletin, Cambridge University Press, vol. 36(1), pages 219-243, May.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Robert, Christian Y., 2013. "Market Value Margin calculations under the Cost of Capital approach within a Bayesian chain ladder framework," Insurance: Mathematics and Economics, Elsevier, vol. 53(1), pages 216-229.
    2. Engsner, Hampus & Lindholm, Mathias & Lindskog, Filip, 2017. "Insurance valuation: A computable multi-period cost-of-capital approach," Insurance: Mathematics and Economics, Elsevier, vol. 72(C), pages 250-264.
    3. Mathias Lindholm & Filip Lindskog & Felix Wahl, 2017. "Valuation of Non-Life Liabilities from Claims Triangles," Risks, MDPI, vol. 5(3), pages 1-28, July.
    4. Hampus Engsner & Mathias Lindholm & Filip Lindskog, 2016. "Insurance valuation: a computable multi-period cost-of-capital approach," Papers 1607.04100, arXiv.org.

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