A Note on the Appropriate Choice of Risk Measures in the Solvency Assessment of Insurance Companies
Journal
The journal of risk finance : JRF
ISSN
1526-5943
Type
journal article
Date Issued
2014
Author(s)
Abstract
Purpose – The concept of value at risk is used in the risk-based calculation of solvency capital
requirements in the Basel II/III banking regulations and in the planned Solvency II insurance
regulation framework planned in the European Union. While this measure controls the ruin
probability of a financial institution, the expected policyholder deficit (EPD) and expected shortfall
(ES) measures, which are relevant from the customer’s perspective as they value the amount
of the shortfall, are not controlled at the same time. Hence, if there are variations in or changes to the
asset-liability situation, financial companies may still comply with the capital requirement, while
the EPD or ES reach unsatisfactory levels. This is a significant drawback to the solvency frameworks.
The paper aims to discuss these issues.
requirements in the Basel II/III banking regulations and in the planned Solvency II insurance
regulation framework planned in the European Union. While this measure controls the ruin
probability of a financial institution, the expected policyholder deficit (EPD) and expected shortfall
(ES) measures, which are relevant from the customer’s perspective as they value the amount
of the shortfall, are not controlled at the same time. Hence, if there are variations in or changes to the
asset-liability situation, financial companies may still comply with the capital requirement, while
the EPD or ES reach unsatisfactory levels. This is a significant drawback to the solvency frameworks.
The paper aims to discuss these issues.
Language
English
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Emerald
Volume
15
Number
2
Start page
110
End page
130
Pages
22
Subject(s)
Division(s)
Additional Information
Prof. Wagner is Professor at the HEC Lausanne; http://people.unil.ch/joelwagner; joel.wagner@unil.ch
Eprints ID
255407