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Fire Risk Sub-Module Assessment under Solvency II. Calculating the Highest Risk Exposure

Author

Listed:
  • Elena Badal-Valero

    (Department of Business Finances, School of Economics, University of Valencia, 46022 Valencia, Spain)

  • Vicente Coll-Serrano

    (Department of Applied Economics, School of Economics, University of Valencia, 46022 Valencia, Spain)

  • Jorge Segura-Gisbert

    (Department of Applied Economics, School of Economics, University of Valencia, 46022 Valencia, Spain)

Abstract

The European Directive 2009/138 of Solvency II requires adopting a new approach based on risk, applying a standard formula as a market proxy in which the risk profile of insurers is fundamental. This study focuses on the fire risk sub-module, framed within the man-made catastrophe risk module, for which the regulations require the calculation of the highest concentration of risks that make up the portfolio of an insurance company within a radius of 200 m. However, the regulations do not indicate a specific methodology. This study proposes a procedure consisting of calculating the cluster with the highest risk and identifying this on a map. The results can be applied immediately by any insurance company, covered under the Solvency II regulations, to determine their maximum exposure to the catastrophic man-made risk of fire, instantly providing them with the necessary input for calibration of the solvency capital requirement.

Suggested Citation

  • Elena Badal-Valero & Vicente Coll-Serrano & Jorge Segura-Gisbert, 2021. "Fire Risk Sub-Module Assessment under Solvency II. Calculating the Highest Risk Exposure," Mathematics, MDPI, vol. 9(11), pages 1-20, June.
    • Handle: RePEc:gam:jmathe:v:9:y:2021:i:11:p:1279-:d:567491
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