Bilateral exposures and systemic solvency risk

Basis Risk, Procyclicality, and Systemic Risk in the Solvency II Equity Risk Module

The purpose of this paper is to systematically analyze the equity risk module of Solvency II, the new regulatory framework in the European Union. The particularly interesting aspect of this module is that it contains a symmetric adjustment mechanism commonly known as equity dampener which shall reduce procyclicality and thus systemic risk in the insurance industry. We critically review the equi...

Measuring Systemic Risk: Common Factor Exposures and Tail Dependence Effects

We model systemic risk by including a common factor exposure to market-wide shocks and an exposure to tail dependence effects arising from linkages among extreme stock returns. Specifically our model allows for the firm-specific impact of infrequent and extreme events. When a jump occurs, its impact is in the same direction for all firms (either positive or negative), but its size and volatilit...

Restricted Coherent Risk Measures and Actuarial Solvency

Risk and Determination of Solvency Capital in the Solvency 2 Framework

This paper investigates the robustness of the Solvency Capital Requirement (SCR) when a log-normal reference model is slightly disturbed by the heaviness of its tail distribution. It is shown that situations with “almost” lognormal data and a rather important variation between the “disturbed” SCR and the reference SCR can be built. The consequences of the estimation errors on the level of the S...

Solvency Ii – Underwriting Credit Risk Models

This research project analyses the Solvency Capital Requirement (SCR) calculation models applicable to Trade Credit Insurance Underwriting Risk. The current regulation, the Solvency II Directive (25/11/2009), is not restrictive in this regard and allows each insurer to use the model of SCR calculation which best suits its purpose, with the condition that it obtains authorization from the local ...