Abstract
The main aim of the article is to assess the vulnerabilities and resilience of a Romanian non-life insurance company in the context of different predefined insurance stress scenarios: natural catastrophe scenario and business scenario. The natural catastrophe scenario consists in two distinct scenarios: earthquake and flood, which were carried out separately and aggregated based on three stress factors: increasing by 15% of PML, increasing by 5% of the gross best estimate claim provisions and reinsurer’s incapacity to pay. The business stress scenario was based on four stress parameters: increasing by 3 % of the claims provisions due to the inflation impact, increasing by 10% of the gross earned premium for MTPL due to the legislative changes, increasing by 15% of the claims provisions for MTPL due to the increase of frequency and severity of the losses induced by the exposure growth as a result of the lower premiums and decreasing by 10% of the ceded best estimate. The results of the stress testing shown that the insurer is more sensitive to business scenario compared to natural catastrophe scenario due to the significant exposure on the MTPL line of business. High exposure to earthquake risk is a characteristic for Romania and the stress testing results confirm the vulnerability of the insurer to the earthquake scenario (non-compliance of the solvency capital requirements), due to the biggest impact of the factor: reinsurer’s incapacity to pay. Therefore, the quality of reinsurance is very important for Romanian insurance companies to be able to manage the risks arising from the seismic events and to be compliant with the regulatory solvency capital requirements.
A new approach to optimal capital allocation for RORAC maximization in banks
