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Tail Risk in Commercial Property Insurance

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Listed:
  • Enrico Biffis

    (Department of Finance, Imperial College Business School, Imperial College London, LondonSW7 2AZ, UK)

  • Erik Chavez

    (Department of Finance, Imperial College Business School, Imperial College London, LondonSW7 2AZ, UK
    Civil & Environmental Engineering Department, Faculty of Engineering, Imperial College London, London SW7 2AZ, UK)

Abstract

We present some new evidence on the tail distribution of commercial property losses based on a recently constructed dataset on large commercial risks. The dataset is based on contributions from Lloyd’s of London syndicates, and provides information on over three thousand claims occurred during the period 2000–2012, including detailed information on exposures. We use occupancy characteristics to compare the tail risk profiles of different commercial property exposures, and find evidence of substantial heterogeneity in tail behavior. The results demonstrate the benefits of aggregating granular information on both claims and exposures from different data sources, and provide warning against the use of reserving and capital modeling approaches that are not robust to heavy tails.

Suggested Citation

  • Enrico Biffis & Erik Chavez, 2014. "Tail Risk in Commercial Property Insurance," Risks, MDPI, vol. 2(4), pages 1-18, September.
    • Handle: RePEc:gam:jrisks:v:2:y:2014:i:4:p:393-410:d:40817
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    References listed on IDEAS

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    Cited by:

    1. Yuyu Chen & Paul Embrechts & Ruodu Wang, 2022. "An unexpected stochastic dominance: Pareto distributions, dependence, and diversification," Papers 2208.08471, arXiv.org, revised Mar 2024.

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