scholarly journals Operational risk quantification and modelling within Romanian insurance industry

2017 ◽  
Vol 11 (1) ◽  
pp. 637-648
Author(s):  
Răzvan Tudor ◽  
Dumitru Badea
Keyword(s):  
Standard Model ◽  
Insurance Industry ◽  
Operational Risk ◽  
Solvency Ii ◽  
Capital Requirements ◽  
Capital Requirement ◽  
Risk Capital ◽  
Operational Risks ◽  
The Standard Model ◽  
Solvency Capital

Abstract This paper aims at covering and describing the shortcomings of various models used to quantify and model the operational risk within insurance industry with a particular focus on Romanian specific regulation: Norm 6/2015 concerning the operational risk issued by IT systems. While most of the local insurers are focusing on implementing the standard model to compute the Operational Risk solvency capital required, the local regulator has issued a local norm that requires to identify and assess the IT based operational risks from an ISO 27001 perspective. The challenges raised by the correlations assumed in the Standard model are substantially increased by this new regulation that requires only the identification and quantification of the IT operational risks. The solvency capital requirement stipulated by the implementation of Solvency II doesn’t recommend a model or formula on how to integrate the newly identified risks in the Operational Risk capital requirements. In this context we are going to assess the academic and practitioner’s understanding in what concerns: The Frequency-Severity approach, Bayesian estimation techniques, Scenario Analysis and Risk Accounting based on risk units, and how they could support the modelling of operational risk that are IT based. Developing an internal model only for the operational risk capital requirement proved to be, so far, costly and not necessarily beneficial for the local insurers. As the IT component will play a key role in the future of the insurance industry, the result of this analysis will provide a specific approach in operational risk modelling that can be implemented in the context of Solvency II, in a particular situation when (internal or external) operational risk databases are scarce or not available.

scholarly journals Improvement of operational risk measurement under the Solvency II framework

2015 ◽  
Vol 5 (2) ◽  
pp. 135-141
Author(s):  
Darja Stepchenko ◽  
Gaida Pettere ◽  
Irina Voronova
Keyword(s):  
Operational Risk ◽  
Solvency Ii ◽  
Capital Requirements ◽  
Risk Measurement ◽  
Insurance Company ◽  
Life Insurance Company ◽  
Risk Capital ◽  
Mathematical Methods ◽  
Solvency Capital

Operational risk is one of the core risks of every insurance company in accordance to the solvency capital requirement under the Solvency II regime. The target of the research is to investigate the improvement possibilities of the operational risk measurement under Solvency II regime. The authors have prepared the algorithm of the operational risk measurement under Solvency II framework that helps improve the understanding of the operational risk capital requirements. Moreover, the authors have prepared the case study about a practical usage of the suggested algorithm through the example of one non-life insurance company. The authors use, in order to perform the research, such corresponding methods as theoretical and methodological analysis of scientific literature, analytical, statistical and mathematical methods.

scholarly journals SCR en el riesgo de suscripción del seguro de vida: mortalidad, longevidad y reaseguro

2020 ◽  
Vol 21 (1) ◽  
pp. 45-64
Author(s):  
María Àngels Pons Cardell ◽  
Francisco Javier Sarrasí Vizcarra
Keyword(s):  
Standard Model ◽  
Internal Model ◽  
Simulation Method ◽  
Capital Requirement ◽  
Solvency Capital Requirement ◽  
Model Based ◽  
The Standard Model ◽  
Solvency Capital ◽  
Stop Loss

The aim of this work is to propose an internal model based on the Monte Carlo’s simulation method, for the calculation of the solvency capital requirement of the subscription of life’s risk, of an insurances company that presents two risks, the survival and mortality ones. Unlike the standard model, the aggregation of these two risks will carry out without knowing the correlation matrixes. Afterwards, the effect that the different modalities of reinsurance have in the solvency capital requirement will be analyzed. The modalities of reinsurance object of analysis are the quota share, the surplus and the stop-loss.

La gestión del riesgo operacional en la banca chilena

Oikos ◽  
2016 ◽  
Vol 19 (40) ◽  
pp. 47
Author(s):  
Cristian Muñoz Anziani ◽  
Alex Medina Giacomozzi
Keyword(s):  
Risk Management ◽  
Standard Model ◽  
Operational Risk ◽  
Bank Regulation ◽  
Optimal Management ◽  
Management Tools ◽  
Operational Risks ◽  
The Standard Model ◽  
Potential Losses

RESUMENEste artículo tiene como objetivo presentar las herramientas de gestión fundamentales que permitan una administración óptima de los riesgos operacionales, con el fin de mitigar las eventuales pérdidas, en los bancos, derivadas de este riesgo. La utilización de distintas herramientas de administración permite identificar, medir, controlar y monitorear los riesgos operacionales. El modelo estándar presentado, deja espacio para adaptaciones de acuerdo a la necesidad específica de la entidad financiera.Palabras clave: riesgo, Basilea, riesgo operacional, regulación bancaria, sistema financiero.Operational risk management in the chilean banking ABSTRACTThis article aims to present fundamental management tools that enable optimal management of operational risks, in order to mitigate potential losses, banks, derivative risk. The utilization of these tools incorporated as a whole, allows to identifying, measure, monitoring and controlling operational risks. The standard model presented, leaves room for adjustments according to the specific needs of the financial institution.Keywords: risk, Basilea, operational risk, bank regulation, banking system.A gestão do risco operacional no sistema bancário chilenoRESUMOEste artigo tem como objetivo apresentar as ferramentas fundamentais de gestão que permitam uma óptima administração dos riscos operacionais, a fim de mitigar as eventuais perdas nos bancos, resultado destes riscos. O uso de diferentes ferramentas de administração permite identificar, medir, controlar e monitorar os riscos operacionais. O modelo standard apresentado deixa o espaço para ajustes de acordo com a necessidade específica da entidade financeira.Palavras-chave: risco, Basilea, risco operacional, regulamentação bancária, sistema financeiro.

scholarly journals A CORRELATION SENSITIVITY ANALYSIS OF NON-LIFE UNDERWRITING RISK IN SOLVENCY CAPITAL REQUIREMENT ESTIMATION

2013 ◽  
Vol 43 (1) ◽  
pp. 21-37 ◽  
Author(s):  
Lluís Bermúdez ◽  
Antoni Ferri ◽  
Montserrat Guillén
Keyword(s):  
Sensitivity Analysis ◽  
Solvency Ii ◽  
Capital Requirement ◽  
Solvency Capital Requirement ◽  
The Standard Model ◽  
Solvency Capital ◽  
One Year ◽  
The Impact ◽  
Model Approach

AbstractThis 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.

scholarly journals PROPERTY RISK UNDER SOLVENCY II: EFFECTS OF DIFFERENT UNSMOOTHING TECHNIQUES

2019 ◽  
Vol 25 (1) ◽  
pp. 1-19
Author(s):  
Pablo Durán Santomil ◽  
Luís Otero González ◽  
Onofre Martorell Cunill ◽  
Anna M. Gil-Lafuente
Keyword(s):  
At Risk ◽  
Standard Model ◽  
Confidence Level ◽  
Calculation Method ◽  
Value At Risk ◽  
Solvency Ii ◽  
Capital Requirements ◽  
Insurance Companies ◽  
The Standard Model ◽  
Monthly Index

Solvency II imposes risk-based capital requirements on EU insurance companies. This paper evaluates the property risk standard model proposed. The calibration was performed from the IPD UK monthly index total returns for the period between December 1986 and December 2009. In general, it is considered that returns derived from valuation-based indices are smoother than those derived from transaction-based indices. This paper contributes to the existing literature by applying various unsmoothing techniques to this index. The results show that the capital requirements, applying the same calculation method (historical value at risk at the 99.5% confidence level) as in the calibration of the standard model, are generally bigger than those proposed in the standard model of Solvency II.

scholarly journals MODELING THE MORTALITY TREND UNDER MODERN SOLVENCY REGIMES

2013 ◽  
Vol 44 (1) ◽  
pp. 1-38 ◽  
Author(s):  
Matthias Börger ◽  
Daniel Fleischer ◽  
Nikita Kuksin
Keyword(s):  
Solvency Ii ◽  
Capital Requirements ◽  
Longevity Risk ◽  
Mortality Trend ◽  
Swiss Solvency Test ◽  
Solvency Capital ◽  
Simultaneous Modeling ◽  
One Year ◽  
The One ◽  
Solvency Regimes

AbstractStochastic modeling of mortality/longevity risks is necessary for internal models of (re)insurers under the new solvency regimes, such as Solvency II and the Swiss Solvency Test. In this paper, we propose a mortality model which fulfills all requirements imposed by these regimes. We show how the model can be calibrated and applied to the simultaneous modeling of both mortality and longevity risk for several populations. The main contribution of this paper is a stochastic trend component which explicitly models changes in the long-term mortality trend assumption over time. This allows to quantify mortality and longevity risk over the one-year time horizon prescribed by the solvency regimes without relying on nested simulations. We illustrate the practical ability of our model by calculating solvency capital requirements for some example portfolios, and we compare these capital requirements with those from the Solvency II standard formula.

scholarly journals TONUITY: A NOVEL INDIVIDUAL-ORIENTED RETIREMENT PLAN

2018 ◽  
Vol 49 (1) ◽  
pp. 5-30 ◽  
Author(s):  
An Chen ◽  
Peter Hieber ◽  
Jakob K. Klein
Keyword(s):  
Risk Aversion ◽  
Switching Time ◽  
Extreme Case ◽  
Solvency Ii ◽  
Capital Requirements ◽  
Insurance Companies ◽  
Longevity Risk ◽  
Insurance Company ◽  
Risk Capital ◽  
Medium Risk

AbstractFor insurance companies in Europe, the introduction of Solvency II leads to a tightening of rules for solvency capital provision. In life insurance, this especially affects retirement products that contain a significant portion of longevity risk (e.g., conventional annuities). Insurance companies might react by price increases for those products, and, at the same time, might think of alternatives that shift longevity risk (at least partially) to policyholders. In the extreme case, this leads to so-called tontine products where the insurance company’s role is merely administrative and longevity risk is shared within a pool of policyholders. From the policyholder’s viewpoint, such products are, however, not desirable as they lead to a high uncertainty of retirement income at old ages. In this article, we alternatively suggest a so-called tonuity that combines the appealing features of tontine and conventional annuity. Until some fixed age (the switching time), a tonuity’s payoff is tontine-like, afterwards the policyholder receives a secure payment of a (deferred) annuity. A tonuity is attractive for both the retiree (who benefits from a secure income at old ages) and the insurance company (whose capital requirements are reduced compared to conventional annuities). The tonuity is a possibility to offer tailor-made retirement products: using risk capital charges linked to Solvency II, we show that retirees with very low or very high risk aversion prefer a tontine or conventional annuity, respectively. Retirees with medium risk aversion, however, prefer a tonuity. In a utility-based framework, we therefore determine the optimal tonuity characterized by the critical switching time that maximizes the policyholder’s lifetime utility.

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