Re-evaluation of the capital charge in insurance after a large shock: empirical and theoretical views

Fabrice Borel-Mathurin, Stéphane Loisel and Johan Segers
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Johan Segers: EIOPA

No 10, EIOPA Financial Stability Report - Thematic Articles from EIOPA, Risks and Financial Stability Department

Abstract: 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 stylised model for re-estimated solvency ratio in insurance. Second, this leads us to solve a new theoretical problem in statistics: 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 regulator data from Banque de France – ACPR. 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.

Keywords: Insurance; Extreme Value Theory; Financial Regulation; Solvency II; Solvency Capital Requirement; Loss Absorbing Capacities; Stress Tests; Enterprise Risk Management (search for similar items in EconPapers)
JEL-codes: G01 G22 G32 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2017-06
New Economics Papers: this item is included in nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published in Financial Stability Report, EIOPA, June 2017, pages 65-87

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Related works:
Working Paper: Reevaluation of the capital charge in insurance after a large shock: empirical and theoretical views (2018)
Working Paper: Reevaluation of the capital charge in insurance after a large shock: empirical and theoretical views (2018)
Working Paper: Reevaluation of the capital charge in insurance after a large shock: empirical and theoretical views (2017)
Working Paper: Reevaluation of the capital charge in insurance after a large shock: empirical and theoretical views (2017)
Working Paper: Reevaluation of the capital charge in insurance after a large shock: empirical and theoretical views (2017)
Working Paper: Reevaluation of the capital charge in insurance after a large shock: empirical and theoretical views (2017)
Working Paper: Reevaluation of the capital charge in insurance after a large shock: empirical and theoretical views (2017)
Working Paper: Reevaluation of the capital charge in insurance after a large shock: empirical and theoretical views (2015)
Working Paper: Reevaluation of the capital charge in insurance after a large shock: empirical and theoretical views (2014)
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