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Advisor(s)
Abstract(s)
In this paper we develop a solvency model to estimate the necessary economic capital of
a real insurance undertaking operating solely in the Automobile branch, applying the Tail
Conditional Expectation risk measure. The model assumes a one year time horizon static
approach with an unchanged asset and liability structure for the company.
After discussing the main factors affecting the whole of the insurance activity and their
influence on the assets and liabilities on that real insurance undertaking used in the study,
we calculate its necessary economic capital, by using the Monte Carlo simulation
technique to generate the probability distribution of the possible future profit and losses
with impact on the company’s fair value.
This paper introduces an application of a set of techniques that are usually applied to
manage asset and liability risks to capital requirements. With a simulated exercise applied
to a real insurance undertaking we show its feasibility, its advantages and how useful it
may be for investors, regulators and remaining stakeholders when the technique is
explored in depth.
Description
Keywords
Tail Conditional Expectation Value-at-Risk Capital Requirement Resampling Monte Carlo Simulation Risk Management
Pedagogical Context
Citation
Duque, João. Alfredo D. Egidio dos Reis and Ricardo Garcia .(2009). “Using tail conditional expectation for capital requirement calculation of a general insurance undertaking”. ISEG – ADVANCE and CEMAPRE at academia.edu. (Search PDF in 2024).
Publisher
ISEG - ADVANCE and CEMAPRE