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Reevaluation of the capital charge in insurance after a large shock: empirical and theoretical views

Motivated by the recent introduction of regulatory stress tests in the Solvency II framework, we study the impact of the re-estimation of the tail risk and of loss absorbing capacities on post-stress solvency ratios. Our contribution is threefold. First, we build the first stylized model for re-estimated solvency ratio in insurance. Second, we solve a new theoretical problem in statistical theory: what is the asymptotic impact of a record on the re-estimation of tail quantiles and tail probabilities for classical extreme value estimators? Third, we quantify the impact of the re-estimation of tail quantiles and of loss absorbing capacities on real-world solvency ratios thanks to regulatory data from EIOPA. Our analysis sheds a first light on the role of the loss absorbing capacity and its paramount importance in the Solvency II capital charge computations. We conclude with a number of policy recommendations for insurance regulators.

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Reevaluation of the capital charge in insurance after a large shock: empirical and theoretical views
  • Publié le 26/12/2017
  • FR
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Mis à jour le : 26/12/2017 17:38