A risk theoretical model for assessing the solvency profile of a general insurer

Document description

A risk theoretical simulation model is here applied in order to assess the default risk of a general insurer along a medium-term time horizon. Different ruin barriers are regarded and by the results of the simulation model is then built up a Risk vs Return trade-off to analyse the most appropriate strategies in order to satisfy the insurer targets.

Clearly not only profitability level but also risk measures must be taken into account, with special reference to minimum capital levels required by the insurance regulators. At this regard different suitable strategies may be pursued and, among these, reinsurance is one of the most relevant for the insurance risk management. Only conventional covers as quota share and excess of loss reinsurance are here regarded, but it is emphasized how effective they can be on the risk/return profile of a general insurer.

To increase the volume of business is a natural target for the management of an insurance company, but that may cause a need of either new capital or/and reinsurance for solvency requirements and consequently a reduction in profitability for stockholders is likely to occur.