Universitat Autònoma de Barcelona
2011
This paper analyses the impact of using different correlation assumptions between lines of business when estimating the risk-based capital reserve, the Solvency Capital Requirement (SCR), under Solvency II regulations. A case study is presented and the SCR is calculated according to the Standard Model approach. Alternatively, the requirement is then calculated using an Internal Model based on a Monte Carlo simulation of the net underwriting result at a one-year horizon, with copulas being used to model the dependence between lines of business. To address the impact of these model assumptions on the SCR we conduct a sensitivity analysis. We examine changes in the correlation matrix between lines of business and address the choice of copulas. Drawing on aggregate historical data from the Spanish non-life insurance market between 2000 and 2009, we conclude that modifications of the correlation and dependence assumptions have a significant impact on SCR estimation.
Working paper
Anglès
Solvency II; Solvency Capital Requirement; Standard Model; Internal Model; Monte Carlo simulation; Copulas; Risk (Insurance); Insurance; Assegurances; Risc (Assegurances); Mètode de Montecarlo
Xarxa de Referència en Economia Aplicada (XREAP)
Xarxa de Referència en Economia Aplicada (XREAP). Documents de treball de la Xarxa de Referència en Economia Aplicada (XREAP) ;
open access
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