Minimum standards for investment performance: A new perspective on non-life insurer solvency
AbstractThe 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Insurance: Mathematics and Economics.
Volume (Year): 45 (2009)
Issue (Month): 1 (August)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505554
Solvency Regulation Investment performance Non-life insurance Normal power approximation;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Freixas, Xavier & Lóránth, Gyöngyi & Morrison, Alan, 2005.
"Regulating Financial Conglomerates,"
CEPR Discussion Papers
5036, C.E.P.R. Discussion Papers.
- Xavier Freixas & Gyongyi Loranth & Alan D. Morrison & Hyun Song Shin, 2004. "Regulating Financial Conglomerates," Working Paper Research 54, National Bank of Belgium.
- Xavier Freixas & Gyöngyi Lóránth & Alan D. Morrison, 2005. "Regulating financial conglomerates," Economics Working Papers 820, Department of Economics and Business, Universitat Pompeu Fabra.
- Xavier Freixas & GyÃ¶ngyi LÃ³rÃ¡nth & Alan D. Morrison, 2005. "Regulating Financial Conglomerates," OFRC Working Papers Series 2005fe03, Oxford Financial Research Centre.
- Barros, Pedro Pita, 1995. "Conduct Effects of Gradual Entry Liberalization in Insurance," Journal of Regulatory Economics, Springer, vol. 8(1), pages 45-60, July.
- Steven Pottier & David Sommer, 2002. "The Effectiveness of Public and Private Sector Summary Risk Measures in Predicting Insurer Insolvencies," Journal of Financial Services Research, Springer, vol. 21(1), pages 101-116, February.
- Consiglio, Andrea & Saunders, David & Zenios, Stavros A., 2006. "Asset and liability management for insurance products with minimum guarantees: The UK case," Journal of Banking & Finance, Elsevier, vol. 30(2), pages 645-667, February.
- Carson, James & Hoyt, Robert, 2000. "Evaluating the risk of life insurer insolvency: implications from the US for the European Union," Journal of Multinational Financial Management, Elsevier, vol. 10(3-4), pages 297-314, December.
- Lamm-Tennant, Joan & Starks, Laura & Stokes, Lynne, 1996. "Considerations of cost trade-offs in insurance solvency surveillance policy," Journal of Banking & Finance, Elsevier, vol. 20(5), pages 835-852, June.
- Dirk Tasche, 2002.
"Expected Shortfall and Beyond,"
cond-mat/0203558, arXiv.org, revised Oct 2002.
- Renbao Chen & Kie Ann Wong, 2004. "The Determinants of Financial Health of Asian Insurance Companies," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(3), pages 469-499.
- Robert L. Winkler & Gary M. Roodman & Robert R. Britney, 1972. "The Determination of Partial Moments," Management Science, INFORMS, vol. 19(3), pages 290-296, November.
- Cuoco, Domenico & Liu, Hong, 2006. "An analysis of VaR-based capital requirements," Journal of Financial Intermediation, Elsevier, vol. 15(3), pages 362-394, July.
- Jan Monkiewicz, 2007. "The Future of Insurance Supervision in the EU: National Authorities, Lead Supervisors or EU Supranational Institution?," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 32(3), pages 393-400, July.
- Masulis, Ronald W. & Korwar, Ashok N., 1986. "Seasoned equity offerings : An empirical investigation," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 91-118.
- Powers, Michael R., 1995. "A theory of risk, return and solvency," Insurance: Mathematics and Economics, Elsevier, vol. 17(2), pages 101-118, October.
- Richard A. Posner, 1974.
"Theories of Economic Regulation,"
NBER Working Papers
0041, National Bureau of Economic Research, Inc.
- Thomas Schubert & Gundula Grie�mann, 2007. "German Proposal for a Standard Approach for Solvency II," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 32(1), pages 133-150, January.
- Anton van Rossum, 2005. "Regulation and Insurance Economics," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 30(1), pages 43-46, January.
- Ray Rees & Hugh Gravelle & Achim Wambach, 1999. "Regulation of Insurance Markets," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 24(1), pages 55-68, June.
- Peter Liebwein, 2006. "Risk Models for Capital Adequacy: Applications in the Context of Solvency II and Beyond," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 31(3), pages 528-550, July.
- Thomas Steffen, 2008. "Solvency II and the Work of CEIOPS," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 33(1), pages 60-65, January.
- Brito, Ney O, 1977. "Marketability Restrictions and the Valuation of Capital Assets under Uncertainty," Journal of Finance, American Finance Association, vol. 32(4), pages 1109-23, September.
- Lynn Wirch, Julia & Hardy, Mary R., 1999. "A synthesis of risk measures for capital adequacy," Insurance: Mathematics and Economics, Elsevier, vol. 25(3), pages 337-347, December.
- Eling, Martin & Schuhmacher, Frank, 2007. "Does the choice of performance measure influence the evaluation of hedge funds?," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2632-2647, September.
- Philippe Artzner & Freddy Delbaen & Jean-Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228.
- Peter Zweifel & Harry Telser & Stephan Vaterlaus, 2006. "Consumer Resistance Against Regulation: The Case of Health Care," Journal of Regulatory Economics, Springer, vol. 29(3), pages 319-332, 05.
- 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.
- 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.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.