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The Effect of Non-Proportional Reinsurance: A Revision of Solvency II Standard Formula

Author

Listed:
  • Gian Paolo Clemente

    (Department of Mathematics, Finance and Econometrics, Università Cattolica del Sacro Cuore, Largo Gemelli 1, 20123 Milano, Italy)

Abstract

Solvency II Standard Formula provides a methodology to recognise the risk-mitigating impact of excess of loss reinsurance treaties in premium risk modelling. We analyse the proposals of both Quantitative Impact Study 5 and Commission Delegated Regulation highlighting some inconsistencies. This paper tries to bridge main pitfalls of both versions. To this aim, we propose a revision of non-proportional adjustment factor in order to measure the effect of excess of loss treaties on premium risk volatility. In this way, capital requirement can be easily assessed. As numerical results show, this proposal appears to be a feasible and much more consistent approach to describe the effect of non-proportional reinsurance on premium risk.

Suggested Citation

  • Gian Paolo Clemente, 2018. "The Effect of Non-Proportional Reinsurance: A Revision of Solvency II Standard Formula," Risks, MDPI, vol. 6(2), pages 1-13, May.
    • Handle: RePEc:gam:jrisks:v:6:y:2018:i:2:p:50-:d:144147
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    References listed on IDEAS

    as
    1. Gian Paolo Clemente & Nino Savelli & Diego Zappa, 2015. "The Impact of Reinsurance Strategies on Capital Requirements for Premium Risk in Insurance," Risks, MDPI, vol. 3(2), pages 1-19, June.
    2. Hürlimann, Werner, 2005. "Excess of Loss Reinsurance with Reinstatements Revisited," ASTIN Bulletin, Cambridge University Press, vol. 35(1), pages 211-238, May.
    3. Centeno, Maria de Lourdes, 1995. "The Effect of the Retention Limit on the Risk Reserve," ASTIN Bulletin, Cambridge University Press, vol. 25(1), pages 67-74, May.
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    Cited by:

    1. Antonio Pallaria & Nino Savelli, 2019. "Premium Risk Net of Reinsurance: From Short-Term to Medium-Term Assessment," Risks, MDPI, vol. 7(3), pages 1-29, July.

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