Analysis and computation of insurance risk capital under the risk-based capital framework for general insurance companies

Abstract

This research focuses on the computation of capital reserves allocated for insurance risk within the non-life insurance sector, specifically focusing on the assessment of individual risk components. The study thoroughly examines the financial resilience of insurance companies by determining the necessary capital reserves for a carefully selected subset of non-life insurance classes, namely motor, fire, engineering, marine, and public liability. These selected classes encompass a wide range of risks, including but not limited to underwriting risk, reserve risk, and catastrophic risk.At the heart of this analysis lies the utilization of the well-established risk metric known as Value at Risk (VaR). VaR serves as the fundamental tool for evaluating the potential financial losses that insurers may face over a specified time horizon and at different confidence levels. This research relies on VaR as a pivotal instrument for assessing and quantifying the capital requirements essential for prudent risk management. The outcomes derived from this study offer invaluable insights into the intricate landscape of non-life insurance risk assessment, providing a robust foundation for making informed decisions and implementing strategic risk management practices within the sector. This research contributes to enhancing the overall financial stability and performance of non-life insurance companies, ultimately benefiting both insurers and policyholders alike.