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Tail Risk in Commercial Property Insurance


  • 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)


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, Open Access Journal, 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

    1. Rustam Ibragimov, 2009. "Portfolio diversification and value at risk under thick-tailedness," Quantitative Finance, Taylor & Francis Journals, vol. 9(5), pages 565-580.
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    10. Desmedt, S. & Snoussi, M. & Chenut, X. & Walhin, J. F., 2012. "Experience and Exposure Rating for Property Per Risk Excess of Loss Reinsurance Revisited," ASTIN Bulletin: The Journal of the International Actuarial Association, Cambridge University Press, vol. 42(01), pages 233-270, May.
    11. M. Ivette Gomes & Laurens De Haan & Lígia Henriques Rodrigues, 2008. "Tail index estimation for heavy‐tailed models: accommodation of bias in weighted log‐excesses," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 70(1), pages 31-52, February.
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    More about this item


    commercial property insurance; exposure rating; heavy tails; tail index; tail regression;

    JEL classification:

    • C - Mathematical and Quantitative Methods
    • G0 - Financial Economics - - General
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting
    • K2 - Law and Economics - - Regulation and Business Law


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