Allocation of risk capital to insurance portfolios

Urban, Michael; Dittrich, Jörg; Klüppelberg, Claudia; Stölting, Rolf

doi:10.1007/bf02858082

Cited by 17 publications

(5 citation statements)

References 8 publications

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“…The literature distinguishes between several different risk allocation rules: The proportional allocation proposed by Urban, Dittrich, Klüppelberg, and Stolting (2003) assigns a fraction of total systemic risk to each institution, where each institution's fraction is given by institution i's individual risk measures divided by the sum of all institutions' individual risk measures. The with-and-without allocation, proposed by Merton and Perold (1993) and Matten (1996), calculates institution i's contribution to systemic risk as the difference in total systemic risk including institution i and excluding institution i.…”

Section: Systemic Risk Measuresmentioning

confidence: 99%

Bubbles, Financial Crises, and Systemic Risk

Brunnermeier

Oehmke²

2013

Handbook of the Economics of Finance

239

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for helpful comments on earlier drafts of this chapter. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w18398.ack NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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Section: Systemic Risk Measuresmentioning

confidence: 99%

Bubbles, Financial Crises, and Systemic Risk

Brunnermeier

Oehmke²

2013

Handbook of the Economics of Finance

239

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“…In recent years, the banking industry recognized the importance of allocation techniques. Theoretical and practical aspects of different allocation schemes have been analyzed in a number of papers, for instance in Garman (1996, 1997), Hallerbach (1999), Schmock and Straumann (1999), Artzner et al (1999b), Delbaen (2000), Overbeck (2000), Denault (2001), Tasche (1999, 2002), Fischer (2003), and Urban et al (2003).…”

Section: Introductionmentioning

confidence: 99%

An Axiomatic Approach to Capital Allocation

Kalkbrener

2005

Mathematical Finance

265

213

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Capital allocation techniques are of central importance in portfolio management and risk-based performance measurement. In this paper we propose an axiom system for capital allocation and analyze its satisfiability and completeness: it is shown that for a given risk measure ρ there exists a capital allocation ρ that satisfies the main axioms if and only if ρ is subadditive and positively homogeneous. Furthermore, it is proved that the axiom system uniquely specifies ρ . We apply the axiomatization to the most popular risk measures in the finance industry in order to derive explicit capital allocation formulae for these measures.

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“…One approach could be to employ a capital allocation scheme (e.g. Dhaene et al, 2012;Urban et al, 2004;Merton and Perold, 1993), in which a portfolio's risk measure, for instance, the Value-at-Risk (VaR) is compared between asset portfolios with varying sectoral asset concentrations and a benchmark portfolio. The benchmark portfolio represents a well-diversified asset portfolio regarding sectoral asset concentrations, with the objective to ensure a specific VaR of the portfolio's asset returns.…”

Section: Policy Implicationsmentioning

confidence: 99%

Sectoral Asset Concentrations and Insurance Solvency Regulation

Regele,

Gründl

2024

JIR

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Historical evidence, like the global financial crisis from 2007–2009, highlights that sectoral asset concentrations can play an important role in the solvency of insurers. Yet, current regulatory frameworks, such as the U.S. risk-based capital (RBC) framework, neglect sectoral asset concentrations in the determination of capital requirements, potentially underestimating the asset portfolio’s systematic loss exposure and reducing incentives for corresponding risk mitigation. By creating a detailed data sample of U.S. insurers’ asset holdings from 2009 to 2018 by means of their statutory filings, we find that insurers concentrate their assets particularly toward the financial, public, and real estate sector and that sectoral asset concentrations toward the public sector are associated with improved solvency, while concentrations toward the real estate sector weaken solvency. Our findings can serve as a starting point to revise current regulatory practices, particularly in terms of creating proactive incentives for insurers to mitigate the accumulation of systematic risk exposures associated with sectoral asset concentrations.

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Allocation of risk capital to insurance portfolios

Cited by 17 publications

References 8 publications

Bubbles, Financial Crises, and Systemic Risk

Bubbles, Financial Crises, and Systemic Risk

An Axiomatic Approach to Capital Allocation

Sectoral Asset Concentrations and Insurance Solvency Regulation

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