Tid: 27 mars 2013 kl 14.15-15.00.

Föredragshållare: Heloise de Sauvage

Titel: Analysis and comparison of capital allocation techniques in an insurance context (Examensarbete - Master thesis)

Abstract Companies issuing insurance cover, in return for insurance premiums, face the payments of claims occurring according to a loss distribution. Hence, capital must be held by the companies so that they can guarantee the fulfilment of the claims of each line of insurance. The increased incidence of insurance insolvency motivates the birth of new legislations as the European Solvency II Directive. Companies have to determine the required amount of capital and the optimal capital allocation across the different lines of insurance in order to keep the risk of insolvency at an adequate level. The capital allocation problem may be treated in different ways, starting from the insurance company balance sheet. Here, the running process and efficiency of four methods are evaluated and compared so as to point out the characteristics of each of the methods. The Value-at-Risk technique is straightforward and can be easily generated for any loss distribution. The insolvency put option principle is easily implementable and is sensitive to the degree of default. The capital asset pricing model is one of the oldest reliable methods and still provides very helpful intermediate results. The Myers and Read marginal capital allocation approach encourages diversification and introduces the concept of default value. Applications of the four methods to some fictive and real insurance companies are provided. The thesis further analyses the sensitivity of those methods to changes in the economic context and comments how insurance companies can anticipate those changes.

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