Reinsurance and Solvency Capital: Mitigating Insurance Companies’ Ruin Probability
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| Natura: | Artículo científico |
| Lingua: | en |
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Associação Nacional de Pós-Graduação e Pesquisa em Administração
2022
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| _version_ | 1876426602760372224 |
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| author | Jorge Wilson Euphasio Junior |
| author_facet | Jorge Wilson Euphasio Junior |
| contents | Reinsurance and Solvency Capital: Mitigating Insurance Companies’ Ruin Probability Jorge Wilson Euphasio Junior João Vinícius França Carvalho Administración y Contabilidad reinsurance Risk processes solvency capital ruin probability Context: insurance companies are important to society, since they guarantee financial protection to individuals from property losses, in addition to fostering the capital market through the allocation of guarantee assets. Thus, it is essential to evaluate the instruments that guarantee their long-term financial solvency. Among them are the adoption of reinsurance treaties, the sizing of the solvency capital, and the actuarial modeling of risk processes, which allow the measurement of the ruin probability. Objective: estimate the ruin probability in risk processes with the adoption of reinsurance contracts (quota share and excess of loss), compared to scenarios without such treaties. Methods: the Cramér-Lundberg process was simulated using the Monte Carlo method, adjusting several probabilistic distributions to the severity of the compound Poisson process, which is calibrated with a set of 3,917,863 real microdata, from 30 insurance lines of business. Results: it was found that, although each branch presents particularities in the claim severity, the correct choice of reinsurance (proportional or not) implies the reduction of the ruin probability for a fixed solvency capital. Conclusion: the appropriate choice of the reinsurance contract, especially when there is evidence of high kurtosis in the claim values, intensifies the exponential decline in the relationship between the solvency capital and the ruin probability. 2022 artículo científico 1415-6555 https://www.redalyc.org/articulo.oa?id=84068347003 https://www.redalyc.org/journal/840/84068347003/ https://www.redalyc.org/journal/840/84068347003/html/ https://www.redalyc.org/journal/840/84068347003/84068347003.epub https://www.redalyc.org/journal/840/84068347003/movil 10.1590/1982-7849rac2022200191.en en http://www.redalyc.org/revista.oa?id=840 RAC - Revista de Administração Contemporânea application/pdf Associação Nacional de Pós-Graduação e Pesquisa em Administração RAC - Revista de Administração Contemporânea (Brasil) Num.1 Vol.26 |
| format | Artículo científico |
| id | redalyc_84068347003 |
| institution | Redalyc |
| language | en |
| publishDate | 2022 |
| publisher | Associação Nacional de Pós-Graduação e Pesquisa em Administração |
| spellingShingle | Reinsurance and Solvency Capital: Mitigating Insurance Companies’ Ruin Probability Jorge Wilson Euphasio Junior Administración y Contabilidad reinsurance Risk processes solvency capital ruin probability Reinsurance and Solvency Capital: Mitigating Insurance Companies’ Ruin Probability Jorge Wilson Euphasio Junior João Vinícius França Carvalho Administración y Contabilidad reinsurance Risk processes solvency capital ruin probability Context: insurance companies are important to society, since they guarantee financial protection to individuals from property losses, in addition to fostering the capital market through the allocation of guarantee assets. Thus, it is essential to evaluate the instruments that guarantee their long-term financial solvency. Among them are the adoption of reinsurance treaties, the sizing of the solvency capital, and the actuarial modeling of risk processes, which allow the measurement of the ruin probability. Objective: estimate the ruin probability in risk processes with the adoption of reinsurance contracts (quota share and excess of loss), compared to scenarios without such treaties. Methods: the Cramér-Lundberg process was simulated using the Monte Carlo method, adjusting several probabilistic distributions to the severity of the compound Poisson process, which is calibrated with a set of 3,917,863 real microdata, from 30 insurance lines of business. Results: it was found that, although each branch presents particularities in the claim severity, the correct choice of reinsurance (proportional or not) implies the reduction of the ruin probability for a fixed solvency capital. Conclusion: the appropriate choice of the reinsurance contract, especially when there is evidence of high kurtosis in the claim values, intensifies the exponential decline in the relationship between the solvency capital and the ruin probability. 2022 artículo científico 1415-6555 https://www.redalyc.org/articulo.oa?id=84068347003 https://www.redalyc.org/journal/840/84068347003/ https://www.redalyc.org/journal/840/84068347003/html/ https://www.redalyc.org/journal/840/84068347003/84068347003.epub https://www.redalyc.org/journal/840/84068347003/movil 10.1590/1982-7849rac2022200191.en en http://www.redalyc.org/revista.oa?id=840 RAC - Revista de Administração Contemporânea application/pdf Associação Nacional de Pós-Graduação e Pesquisa em Administração RAC - Revista de Administração Contemporânea (Brasil) Num.1 Vol.26 |
| title | Reinsurance and Solvency Capital: Mitigating Insurance Companies’ Ruin Probability |
| topic | Administración y Contabilidad reinsurance Risk processes solvency capital ruin probability |
| url | https://www.redalyc.org/articulo.oa?id=84068347003 https://www.redalyc.org/journal/840/84068347003/ https://www.redalyc.org/journal/840/84068347003/html/ https://www.redalyc.org/journal/840/84068347003/84068347003.epub https://www.redalyc.org/journal/840/84068347003/movil |