IDEAS home Printed from https://ideas.repec.org/a/pal/gpprii/v34y2009i2p159-174.html
   My bibliography  Save this article

How Much Capital Does a Reinsurance Need?

Author

Listed:
  • Jean-Luc Besson

    (SCOR, General Guisan, Quai26, Zurich 8022, Switzerland)

  • Michel M Dacorogna

    (SCOR, General Guisan, Quai26, Zurich 8022, Switzerland)

  • Paolo de Martin

    (SCOR, General Guisan, Quai26, Zurich 8022, Switzerland)

  • Michael Kastenholz

    (SCOR, General Guisan, Quai26, Zurich 8022, Switzerland)

  • Michael Moller

    (SCOR, General Guisan, Quai26, Zurich 8022, Switzerland)

Abstract

A modern reinsurance company needs to manage its capital efficiently. The problem is that there are many views on capital, depending on the various positions of the stakeholders of the company involved. In this paper, we present a consistent way of defining capital and of managing it, taking into account the view of all stakeholders. We answer the question of how much capital is required by the business, and introduce the notion of buffer capital. This is used to reduce the likelihood of the company having to call too often on its shareholders to refurbish its capital. We show how this concept relates to the setting of return on equity objectives for the company. Capital allocation is the driver for measuring the economic performance of a business. The fixing of limits relating to capital consumption is linked to capital allocation because it preserves the diversification of the book. We advocate the use of the internal model to determine all of these parameters, and to set the stage for good enterprise risk management within the company. The Geneva Papers (2009) 34, 159–174. doi:10.1057/gpp.2009.8

Suggested Citation

  • Jean-Luc Besson & Michel M Dacorogna & Paolo de Martin & Michael Kastenholz & Michael Moller, 2009. "How Much Capital Does a Reinsurance Need?," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 34(2), pages 159-174, April.
    • Handle: RePEc:pal:gpprii:v:34:y:2009:i:2:p:159-174
    as

    Download full text from publisher

    File URL: http://www.palgrave-journals.com/gpp/journal/v34/n2/pdf/gpp20098a.pdf
    File Function: Link to full text PDF
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: http://www.palgrave-journals.com/gpp/journal/v34/n2/full/gpp20098a.html
    File Function: Link to full text HTML
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Das, Shubhabrata & Kratz, Marie, 2010. "On Devising Various Alarm Systems for Insurance Companies," ESSEC Working Papers DR 10008, ESSEC Research Center, ESSEC Business School.
    2. Burnecki, Krzysztof & Giuricich, Mario Nicoló & Palmowski, Zbigniew, 2019. "Valuation of contingent convertible catastrophe bonds — The case for equity conversion," Insurance: Mathematics and Economics, Elsevier, vol. 88(C), pages 238-254.
    3. Das, S. & Kratz, M., 2012. "Alarm system for insurance companies: A strategy for capital allocation," Insurance: Mathematics and Economics, Elsevier, vol. 51(1), pages 53-65.
    4. Marie Kratz & Shubhabrata Das, 2010. "On Devising Various Alarm Systems for Insurance Companies," Post-Print hal-00572546, HAL.
    5. Shubhabrata Das & Marie Kratz, 2010. "Alarm System for Insurance Companies: A Strategy for Capital Allocation," Papers 1006.5473, arXiv.org.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:gpprii:v:34:y:2009:i:2:p:159-174. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave-journals.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.