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Minimum standards for investment performance: A new perspective on non-life insurer solvency

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Author Info

  • Eling, Martin
  • Gatzert, Nadine
  • Schmeiser, Hato

Abstract

The aim of this paper is to develop an alternative approach for assessing an insurer's solvency as a proposal for a standard model for Solvency II. Instead of deriving minimum capital requirements-as is done in solvency regulation-our model provides company-specific minimum standards for risk and return of investment performance, given the distribution structure of liabilities and a predefined safety level. The idea behind this approach is that in a situation of weak solvency, an insurer's asset allocation can be adjusted much more easily in the short term than can, for example, claims cost distributions, operating expenses, or equity capital. Hence, instead of using separate models for capital regulation and solvency regulation-as is typically done in most insurance markets-our single model will reduce the complexity and costs for insurers as well as for regulators. In this paper, we first develop the model framework and second test its applicability using data from a German non-life insurer.

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Bibliographic Info

Article provided by Elsevier in its journal Insurance: Mathematics and Economics.

Volume (Year): 45 (2009)
Issue (Month): 1 (August)
Pages: 113-122

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Handle: RePEc:eee:insuma:v:45:y:2009:i:1:p:113-122

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Web page: http://www.elsevier.com/locate/inca/505554

Related research

Keywords: Solvency Regulation Investment performance Non-life insurance Normal power approximation;

References

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Citations

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Cited by:
  1. Gatzert, Nadine & Kellner, Ralf, 2011. "The influence of non-linear dependencies on the basis risk of industry loss warranties," Insurance: Mathematics and Economics, Elsevier, vol. 49(1), pages 132-144, July.
  2. Dorothea Diers & Martin Eling & Christian Kraus & Andreas Reuß, 2012. "Market-consistent embedded value in non-life insurance: how to measure it and why," Journal of Risk Finance, Emerald Group Publishing, vol. 13(4), pages 320-346.
  3. Eling, Martin & Pankoke, David, 2013. "Basis Risk, Procylicality, and Systemic Risk in the Solvency II Equity Risk Module," Working Papers on Finance 1306, University of St. Gallen, School of Finance.

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