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On the Group Level Swiss Solvency Test

Author

Listed:
  • Damir Filipovic

    (Department of Mathematics, University of Munich)

  • Michael Kupper

Abstract

In this paper we elaborate on Swiss Solvency Test (SST) consistent group diversification effects via optimizing the web of capital and risk transfer (CRT) instruments between the legal entities. A group level SST principle states that subsidiaries can be sold by the parent company at their economic value minus some minimum capital requirement. In a numerical example we examine the dependence of the optimal CRT on this minimum capital requirement. Our findings raise the question of how to actually implement this group level SST principle and how to define the respective level of minimum capital requirements, in particular.

Suggested Citation

  • Damir Filipovic & Michael Kupper, 2007. "On the Group Level Swiss Solvency Test," Research Paper Series 188, Quantitative Finance Research Centre, University of Technology, Sydney.
    • Handle: RePEc:uts:rpaper:188
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    File URL: https://www.uts.edu.au/sites/default/files/qfr-archive-02/QFR-rp188.pdf
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    Cited by:

    1. Nadine Gatzert & Hato Schmeiser, 2011. "On the risk situation of financial conglomerates: does diversification matter?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 25(1), pages 3-26, March.
    2. Andreas Haier & Ilya Molchanov & Michael Schmutz, 2015. "Intragroup transfers, intragroup diversification and their risk assessment," Papers 1511.06320, arXiv.org, revised Nov 2016.
    3. Damir Filipović & Gregor Svindland, 2008. "Optimal capital and risk allocations for law- and cash-invariant convex functions," Finance and Stochastics, Springer, vol. 12(3), pages 423-439, July.
    4. Kull, Andreas, 2009. "Sharing Risk – An Economic Perspective," ASTIN Bulletin, Cambridge University Press, vol. 39(2), pages 591-613, November.
    5. Caroline Siegel, 2013. "Solvency Assessment for Insurance Groups in the United States and Europe—A Comparison of Regulatory Frameworks," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 38(2), pages 308-331, April.
    6. Kanno Masayasu, 2013. "Insurance Group Risk Management Model for the Next-Generation Solvency Framework," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 7(2), pages 27-52, July.
    7. Andreas Haier & Ilya Molchanov & Michael Schmutz, 2016. "Intragroup transfers, intragroup diversification and their risk assessment," Annals of Finance, Springer, vol. 12(3), pages 363-392, December.
    8. Ettlin, Nicolas & Farkas, Walter & Kull, Andreas & Smirnow, Alexander, 2020. "Optimal risk-sharing across a network of insurance companies," Insurance: Mathematics and Economics, Elsevier, vol. 95(C), pages 39-47.

    More about this item

    Keywords

    convex optimization; group diversification; minimum capital requirement; Swiss solvency test;
    All these keywords.

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