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Insurance Portfolio Risk Retention

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  • Edward Frees

Abstract

In this article, I introduce a statistic for managing a portfolio of insurance risks. This tool is based on changes in the risk profile when changes in a risk parameter, such as a deductible, coinsurance, or upper policy limit, are made. I refer to the new statistic as a risk measure relative marginal change and denote it as RM2. By examining data from the Wisconsin Local Government Property Fund, I show how it can be used by an insurer to identify the “best” and “worst” risks in terms of opportunities for risk management. The RM2 changes reflect the underlying dependence structure of risks; I use an elliptical copula framework to demonstrate the sensitivity of risk mitigation strategy to the dependence structure.

Suggested Citation

  • Edward Frees, 2017. "Insurance Portfolio Risk Retention," North American Actuarial Journal, Taylor & Francis Journals, vol. 21(4), pages 526-551, October.
    • Handle: RePEc:taf:uaajxx:v:21:y:2017:i:4:p:526-551
    DOI: 10.1080/10920277.2017.1317272
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    Cited by:

    1. Bauer, Daniel & Zanjani, George, 2021. "Economic capital and RAROC in a dynamic model," Journal of Banking & Finance, Elsevier, vol. 125(C).

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