This document discusses modeling underwriting premium risk for motor third party liability (MTPL) insurance under Italy's direct compensation (CARD) system. It provides an overview of the CARD system and the challenges it poses for pricing and risk modeling. Specifically, it notes that negative claim amounts are possible under CARD, the frequency and costs of both caused and suffered claims must be modeled, and historical experience is limited. It then describes the CARD forfeit structure and rules in more detail. The goal is to develop an internal model for assessing underwriting premium risk capital charges on an MTPL portfolio under the CARD system.
This document discusses traditional and alternative insurance options for catastrophe risks such as hurricanes, earthquakes, and floods. It provides details on:
- Traditional reinsurance and its limitations in fully meeting coverage demands, leading to the growth of alternative options like catastrophe (CAT) bonds.
- How CAT bonds work, including being issued by a special purpose vehicle to provide reinsurance coverage to primary insurers and allow access to capital markets.
- The components and uses of CAT models, which are computer simulations used to analyze catastrophe risk and loss exposures in property portfolios. CAT models help price coverage and allocate capital.
- Key considerations for primary insurers in deciding between traditional reinsurance or CAT bonds to transfer catastrophe
1. Actuaries are professionals who quantify and price financial risks for insurance companies. They determine premiums, reserves, and economic capital.
2. Becoming an actuary requires passing examinations in probability, mathematics, statistics, and finance. The requirements vary by country but it is a regulated profession everywhere.
3. Actuaries work on pricing and reserving for various insurance products including general insurance, life insurance, health insurance, and pensions. They also work in reinsurance, catastrophe modeling, and other non-traditional roles applying statistical skills.
This document provides an overview of cat bonds, which offer an alternative capacity source for natural catastrophe insurance. Cat bonds transfer catastrophe risk to the capital markets through securitization. Since 1997, 141 cat bonds have been issued totaling $27 billion in risk limits. The market started growing significantly after major hurricanes and earthquakes in the 1990s. Investor interest continues to rise due to attractive yields and increased understanding of natural catastrophe risk. Cat bonds and other insurance-linked securities may prove useful for risk management in China and other parts of Asia in the future.
This document discusses using R to price different types of insurance contracts. It provides examples of pricing life insurance, personal lines insurance, and excess of loss reinsurance contracts. For each type of insurance, it shows how to model costs and losses in R, calculate key metrics like expected claims and capital requirements, and determine final premiums. Code used in the examples is provided in an appendix.
The document defines key terms related to insurance pricing such as rate, exposure unit, pure premium, and loading. It describes the objectives of insurance pricing from both regulatory and business perspectives. The types of rating discussed include judgment rating, class rating, merit rating, schedule rating, experience rating, and retrospective rating. Class rating and two methods for determining class rates, pure premium and loss ratio, are explained in detail with examples. Merit rating adjusts class rates based on individual risk characteristics and loss experience.
This document discusses international insurance regulation, specifically regarding the differences between property/casualty and life insurance contracts and their accounting implications. Key points include:
- Property/casualty contracts are usually short-term while life/annuity contracts are long-term, spanning decades.
- Claims outcomes for property/casualty insurance vary widely each year depending on events, while life insurance claims are more predictable.
- Statutory accounting principles (SAP) and generally accepted accounting principles (GAAP) have some differences in how they value assets and recognize revenues and expenses.
- Small and large businesses are increasingly forming "profit center captives" as a way to profit from risk by selling insurance products like warranties to their customers.
- Large companies like Verizon and Walmart have been successfully selling insurance products to customers for years, realizing new profits. These small insurance programs within larger companies are called "profit center captives".
- Profit center captives allow companies to take on third-party risks from customers or other external parties, converting those premiums paid into new revenue streams and profits for the company. They provide benefits like strengthening customer relationships and diversifying revenue.
This document discusses traditional and alternative insurance options for catastrophe risks such as hurricanes, earthquakes, and floods. It provides details on:
- Traditional reinsurance and its limitations in fully meeting coverage demands, leading to the growth of alternative options like catastrophe (CAT) bonds.
- How CAT bonds work, including being issued by a special purpose vehicle to provide reinsurance coverage to primary insurers and allow access to capital markets.
- The components and uses of CAT models, which are computer simulations used to analyze catastrophe risk and loss exposures in property portfolios. CAT models help price coverage and allocate capital.
- Key considerations for primary insurers in deciding between traditional reinsurance or CAT bonds to transfer catastrophe
1. Actuaries are professionals who quantify and price financial risks for insurance companies. They determine premiums, reserves, and economic capital.
2. Becoming an actuary requires passing examinations in probability, mathematics, statistics, and finance. The requirements vary by country but it is a regulated profession everywhere.
3. Actuaries work on pricing and reserving for various insurance products including general insurance, life insurance, health insurance, and pensions. They also work in reinsurance, catastrophe modeling, and other non-traditional roles applying statistical skills.
This document provides an overview of cat bonds, which offer an alternative capacity source for natural catastrophe insurance. Cat bonds transfer catastrophe risk to the capital markets through securitization. Since 1997, 141 cat bonds have been issued totaling $27 billion in risk limits. The market started growing significantly after major hurricanes and earthquakes in the 1990s. Investor interest continues to rise due to attractive yields and increased understanding of natural catastrophe risk. Cat bonds and other insurance-linked securities may prove useful for risk management in China and other parts of Asia in the future.
This document discusses using R to price different types of insurance contracts. It provides examples of pricing life insurance, personal lines insurance, and excess of loss reinsurance contracts. For each type of insurance, it shows how to model costs and losses in R, calculate key metrics like expected claims and capital requirements, and determine final premiums. Code used in the examples is provided in an appendix.
The document defines key terms related to insurance pricing such as rate, exposure unit, pure premium, and loading. It describes the objectives of insurance pricing from both regulatory and business perspectives. The types of rating discussed include judgment rating, class rating, merit rating, schedule rating, experience rating, and retrospective rating. Class rating and two methods for determining class rates, pure premium and loss ratio, are explained in detail with examples. Merit rating adjusts class rates based on individual risk characteristics and loss experience.
This document discusses international insurance regulation, specifically regarding the differences between property/casualty and life insurance contracts and their accounting implications. Key points include:
- Property/casualty contracts are usually short-term while life/annuity contracts are long-term, spanning decades.
- Claims outcomes for property/casualty insurance vary widely each year depending on events, while life insurance claims are more predictable.
- Statutory accounting principles (SAP) and generally accepted accounting principles (GAAP) have some differences in how they value assets and recognize revenues and expenses.
- Small and large businesses are increasingly forming "profit center captives" as a way to profit from risk by selling insurance products like warranties to their customers.
- Large companies like Verizon and Walmart have been successfully selling insurance products to customers for years, realizing new profits. These small insurance programs within larger companies are called "profit center captives".
- Profit center captives allow companies to take on third-party risks from customers or other external parties, converting those premiums paid into new revenue streams and profits for the company. They provide benefits like strengthening customer relationships and diversifying revenue.
The document is a letter from the American Council of Life Insurers (ACLI) responding to an IASB discussion paper on accounting for dynamic risk management. The ACLI appreciates IASB's recognition of the importance of dynamic hedging but has concerns about uncertainties in the discussion paper, such as issues related to hedge effectiveness. The ACLI is also concerned that the discussion paper focuses on interest rate risk management and a balance sheet approach, which does not address other risks or the business model of life insurers where a significant portion of assets are measured at fair value through other comprehensive income. The ACLI encourages IASB to continue its work to resolve these issues and recognize that an entity's business model should be
This document defines and describes different types of insurance intermediaries according to IRDA act 1999, including brokers or agents who represent consumers and match their needs with suitable insurance products. It discusses insurance agents, brokers, bancassurance where banks sell insurance, and micro insurance agents. For agents, it covers eligibility, education, training, functions, rights, and termination. For brokers it discusses licensing and code of conduct regarding clients, sales practices, and more. It also provides details about bancassurance partnerships in India.
Ferma Position Paper on the 2013 Green Paper on Disaster InsuranceFERMA
This document summarizes FERMA's position on the European Commission's Green Paper on the Insurance of Natural and Man-made disasters. FERMA represents large companies that potentially face major disasters. They do not see the need for mandatory disaster insurance frameworks. Their key points are: (1) Large companies are already aware of disaster risks and buy insurance; (2) Existing insurance market capacities and national systems already provide options to improve coverage; (3) Any EU-level mechanism to classify disasters risks delays for clients to claim payments. FERMA worries about differing safety standards among countries being tied to a mandatory EU disaster mechanism. Overall they believe existing private market solutions and risk prevention practices are sufficient without EU intervention.
The document provides an overview of commercial property insurance. It discusses key concepts like the insuring clause, covered property, excluded property, amounts payable, and extensions/additional coverages. Specifically, it explains that property insurance covers direct physical loss or damage to covered property like buildings, business personal property, and personal property of others located at scheduled premises. It also outlines common limits, deductibles, valuation methods, and additional coverages provided.
This document summarizes a paper on motor premium rating in India. It discusses the current tariff regime for motor insurance that is leading to losses for many companies. With the likely deregulation of motor insurance tariffs, companies will need to use actuarial fundamentals to scientifically price policies. It emphasizes the importance of collecting comprehensive driver, vehicle, and policy data to analyze risk groups and determine appropriate premiums. The document provides an overview of how to calculate an adequate overall premium and determine differential ratings based on risk factors.
The document summarizes key information about timely claim reporting and includes the following points:
1) Claims reported more than 24 hours after occurrence are 33% more costly. Timely reporting is important for a company's risk performance scorecard.
2) Timely reporting allows for early relationships with injured parties to ensure claims are handled properly, and allows adjusters to investigate claims when events are freshest in minds of injured employees and witnesses.
3) Faster reporting means better care for injured parties, faster claim resolution and payments, and ultimately lower costs for employers.
The document discusses the key differences between insurers and banks. It notes that insurers exist to take on risks from policyholders and pool them, while banks engage in deposit-taking and lending. The core activities, risk profiles, and balance sheets of insurers and banks differ significantly. Specifically, insurers face underwriting, market, and asset-liability mismatch risks, while banks primarily face credit, liquidity, and market risks. Applying banking regulations to insurers would fail to account for these fundamental differences and could negatively impact the insurance sector and economy.
Diminishing limit policies, which count defense costs against the policy's liability limit, create challenges for insurers, defense counsel, and policyholders. They require insurers to carefully handle claims to avoid exhausting limits and expose them to bad faith claims. Defense counsel may face conflicts of interest as their duty is to the policyholder but costs hurt limits. Policyholders need frequent updates on remaining limits as multiple claims could exhaust aggregate coverage. Insurance agents must ensure clients understand these risks when purchasing diminishing limit policies.
This document provides an overview of various types of commercial insurance policies and concepts, including:
- Commercial Package Policies that bundle various coverage parts like general liability, property, and business income.
- The distinction between first-party insurance that pays the policyholder, and third-party insurance that pays others.
- The importance of reading the policy (RTFP) to understand what is and isn't covered, including any sub-limits or exclusions.
- Differences between excess policies, umbrellas, towers of coverage, and how policies may follow-form or have standalone terms.
- Concepts of self-insurance, large deductible plans, captives, reinsurance, fronting
This document summarizes insurance requirements for contractors working with California Polytechnic State University. It outlines the need to transfer risk from the university to contractors through insurance and indemnification in contracts. Basic insurance types like general liability, auto liability, and workers' compensation are required, along with proof of insurance through certificates of insurance naming the university as an additional insured. Specialized policies and endorsements may also be needed depending on the type of work. The document provides examples of insurance issues that can arise and tips for managing risk through contractual agreements and verification of appropriate coverage.
Sharing with you my dear readers who may find it useful.
Feel free to connect with me at maxermesilliam@gmail.com.
P/S: taken the insurance exam but has yet to practice as an insurance agent.
Sharing with you my dear readers who may find it useful.
Feel free to connect with me at maxermesilliam@gmail.com.
P/S: taken the insurance exam but has yet to practice as an insurance agent.
- Insurance companies provide insurance policies to policyholders in exchange for premium payments. The policies are legally binding contracts where the insurance company agrees to pay specified sums if future events occur, such as death or an accident.
- Insurance companies accept the risk from policyholders in exchange for premiums. They determine which applications to accept and how much to charge through underwriting. Premiums provide stable revenue while payments to policyholders are the major expense.
- There are various types of insurance like life, health, property & casualty, liability, and investment-oriented products. Insurance companies combine these types of insurance in different ways and are regulated at the state level in the US.
The document discusses the key objectives and process of underwriting in the insurance industry. It provides definitions of underwriting as examining and classifying risks to determine appropriate premiums. The objectives are outlined as providing equitable, profitable and deliverable insurance policies. Key aspects covered include risk factors considered, principles of utmost good faith and moral hazard, types of underwriters and their roles, and importance of sound underwriting. Rules for application forms and documentation requirements are also summarized.
The document discusses the differences between occurrence-based and claims-made medical malpractice insurance. Occurrence-based insurance provides unlimited coverage for any claims that occur during the policy period, even if reported later. Claims-made insurance only covers claims that both occur and are reported during the active policy period, unless tail coverage is purchased. Tail coverage extends reporting timelines but is expensive, with costs increasing each year. Over time, premiums for claims-made insurance typically exceed those of occurrence-based policies due to increasing liability exposure. Proper due diligence is important when evaluating and switching between these policy types.
Basics of Insurance by RapidValue SolutionsRapidValue
This presentation explains the process of Insurance in a very Simplistic and schematic way. It starts with the definition of Insurance and moves onto the types of insurance like life insurance, general insurance, P&C insurance, Auto insurance etc. It explains the insurance industry sales channels and the customer purchase process. The presentation also looks to explain the claims process. It suggests, citing statistics from various sources, that insurance industry will have to go thorough digital transformation as it will benefit both the insurers and the customers.
The document examines the characteristics of insurance contracts, defining insurable risks as risks that can be pooled and calculated to determine premiums, and insurance contracts as agreements where insurers take on risks from policyholders in exchange for premiums. It also discusses the benefits of insurance in reducing uncertainty through risk pooling and diversification, as well as the costs of moral hazard and adverse selection, and how insurers use mechanisms like deductibles, limits, and coinsurance to mitigate these costs.
This module discusses risk management and insurance. It covers topics such as risks and risk management, different types of risks, methods of handling risks including avoiding, controlling, accepting and transferring risks. It also discusses the basic concepts of insurance including risk pooling, law of large numbers, requirements of insurable risks, advantages and disadvantages of insurance. Additionally, it covers personal risk management process, objectives of risk management pre-loss and post-loss, insurance market dynamics and underwriting cycle. Finally, it discusses some key legal principles of insurance contracts such as offer and acceptance, consideration, insurable interest, subrogation and utmost good faith.
When market conditions are good insurance companies get low of business and their profits increase but in the adverse market conditions the companies start facing losses or their profitability reaches to rock bottom.
This presentation serves as study notes for the e-learning material titled: "South African Hedge funds and international developments"
These notes focus on Solvency II and its Impact on the Hedge Fund Industry.
http://www.hedgefund-sa.co.za/solvency-ii
2016 Analysis on Beyond Implementation, Insurance, Business and Market Effect...Ganesh Pandagale
Description-
Synopsis
Timetrics 'Insight Report: Solvency II Beyond Implementation' analyzes the developments in the insurance industry following the implementation of Solvency II on January 1, 2016.
Most insurers in Europe region have found taht their risk management and governance strategies have improved as a result of Solvency II. Moreover, the regime prepares the ground for a single insurance market across Europe, enabling insurers and reinsurers to operate under the same set of regulations.
It will increase the competitiveness of insurers and reinsurers, and provide the same level of consumer protection throughout the European insurance industry.
To Browse a Report Detail with TOC @ http://www.researchmoz.us/insight-report-solvency-ii-beyond-implementation-report.html
The document is a letter from the American Council of Life Insurers (ACLI) responding to an IASB discussion paper on accounting for dynamic risk management. The ACLI appreciates IASB's recognition of the importance of dynamic hedging but has concerns about uncertainties in the discussion paper, such as issues related to hedge effectiveness. The ACLI is also concerned that the discussion paper focuses on interest rate risk management and a balance sheet approach, which does not address other risks or the business model of life insurers where a significant portion of assets are measured at fair value through other comprehensive income. The ACLI encourages IASB to continue its work to resolve these issues and recognize that an entity's business model should be
This document defines and describes different types of insurance intermediaries according to IRDA act 1999, including brokers or agents who represent consumers and match their needs with suitable insurance products. It discusses insurance agents, brokers, bancassurance where banks sell insurance, and micro insurance agents. For agents, it covers eligibility, education, training, functions, rights, and termination. For brokers it discusses licensing and code of conduct regarding clients, sales practices, and more. It also provides details about bancassurance partnerships in India.
Ferma Position Paper on the 2013 Green Paper on Disaster InsuranceFERMA
This document summarizes FERMA's position on the European Commission's Green Paper on the Insurance of Natural and Man-made disasters. FERMA represents large companies that potentially face major disasters. They do not see the need for mandatory disaster insurance frameworks. Their key points are: (1) Large companies are already aware of disaster risks and buy insurance; (2) Existing insurance market capacities and national systems already provide options to improve coverage; (3) Any EU-level mechanism to classify disasters risks delays for clients to claim payments. FERMA worries about differing safety standards among countries being tied to a mandatory EU disaster mechanism. Overall they believe existing private market solutions and risk prevention practices are sufficient without EU intervention.
The document provides an overview of commercial property insurance. It discusses key concepts like the insuring clause, covered property, excluded property, amounts payable, and extensions/additional coverages. Specifically, it explains that property insurance covers direct physical loss or damage to covered property like buildings, business personal property, and personal property of others located at scheduled premises. It also outlines common limits, deductibles, valuation methods, and additional coverages provided.
This document summarizes a paper on motor premium rating in India. It discusses the current tariff regime for motor insurance that is leading to losses for many companies. With the likely deregulation of motor insurance tariffs, companies will need to use actuarial fundamentals to scientifically price policies. It emphasizes the importance of collecting comprehensive driver, vehicle, and policy data to analyze risk groups and determine appropriate premiums. The document provides an overview of how to calculate an adequate overall premium and determine differential ratings based on risk factors.
The document summarizes key information about timely claim reporting and includes the following points:
1) Claims reported more than 24 hours after occurrence are 33% more costly. Timely reporting is important for a company's risk performance scorecard.
2) Timely reporting allows for early relationships with injured parties to ensure claims are handled properly, and allows adjusters to investigate claims when events are freshest in minds of injured employees and witnesses.
3) Faster reporting means better care for injured parties, faster claim resolution and payments, and ultimately lower costs for employers.
The document discusses the key differences between insurers and banks. It notes that insurers exist to take on risks from policyholders and pool them, while banks engage in deposit-taking and lending. The core activities, risk profiles, and balance sheets of insurers and banks differ significantly. Specifically, insurers face underwriting, market, and asset-liability mismatch risks, while banks primarily face credit, liquidity, and market risks. Applying banking regulations to insurers would fail to account for these fundamental differences and could negatively impact the insurance sector and economy.
Diminishing limit policies, which count defense costs against the policy's liability limit, create challenges for insurers, defense counsel, and policyholders. They require insurers to carefully handle claims to avoid exhausting limits and expose them to bad faith claims. Defense counsel may face conflicts of interest as their duty is to the policyholder but costs hurt limits. Policyholders need frequent updates on remaining limits as multiple claims could exhaust aggregate coverage. Insurance agents must ensure clients understand these risks when purchasing diminishing limit policies.
This document provides an overview of various types of commercial insurance policies and concepts, including:
- Commercial Package Policies that bundle various coverage parts like general liability, property, and business income.
- The distinction between first-party insurance that pays the policyholder, and third-party insurance that pays others.
- The importance of reading the policy (RTFP) to understand what is and isn't covered, including any sub-limits or exclusions.
- Differences between excess policies, umbrellas, towers of coverage, and how policies may follow-form or have standalone terms.
- Concepts of self-insurance, large deductible plans, captives, reinsurance, fronting
This document summarizes insurance requirements for contractors working with California Polytechnic State University. It outlines the need to transfer risk from the university to contractors through insurance and indemnification in contracts. Basic insurance types like general liability, auto liability, and workers' compensation are required, along with proof of insurance through certificates of insurance naming the university as an additional insured. Specialized policies and endorsements may also be needed depending on the type of work. The document provides examples of insurance issues that can arise and tips for managing risk through contractual agreements and verification of appropriate coverage.
Sharing with you my dear readers who may find it useful.
Feel free to connect with me at maxermesilliam@gmail.com.
P/S: taken the insurance exam but has yet to practice as an insurance agent.
Sharing with you my dear readers who may find it useful.
Feel free to connect with me at maxermesilliam@gmail.com.
P/S: taken the insurance exam but has yet to practice as an insurance agent.
- Insurance companies provide insurance policies to policyholders in exchange for premium payments. The policies are legally binding contracts where the insurance company agrees to pay specified sums if future events occur, such as death or an accident.
- Insurance companies accept the risk from policyholders in exchange for premiums. They determine which applications to accept and how much to charge through underwriting. Premiums provide stable revenue while payments to policyholders are the major expense.
- There are various types of insurance like life, health, property & casualty, liability, and investment-oriented products. Insurance companies combine these types of insurance in different ways and are regulated at the state level in the US.
The document discusses the key objectives and process of underwriting in the insurance industry. It provides definitions of underwriting as examining and classifying risks to determine appropriate premiums. The objectives are outlined as providing equitable, profitable and deliverable insurance policies. Key aspects covered include risk factors considered, principles of utmost good faith and moral hazard, types of underwriters and their roles, and importance of sound underwriting. Rules for application forms and documentation requirements are also summarized.
The document discusses the differences between occurrence-based and claims-made medical malpractice insurance. Occurrence-based insurance provides unlimited coverage for any claims that occur during the policy period, even if reported later. Claims-made insurance only covers claims that both occur and are reported during the active policy period, unless tail coverage is purchased. Tail coverage extends reporting timelines but is expensive, with costs increasing each year. Over time, premiums for claims-made insurance typically exceed those of occurrence-based policies due to increasing liability exposure. Proper due diligence is important when evaluating and switching between these policy types.
Basics of Insurance by RapidValue SolutionsRapidValue
This presentation explains the process of Insurance in a very Simplistic and schematic way. It starts with the definition of Insurance and moves onto the types of insurance like life insurance, general insurance, P&C insurance, Auto insurance etc. It explains the insurance industry sales channels and the customer purchase process. The presentation also looks to explain the claims process. It suggests, citing statistics from various sources, that insurance industry will have to go thorough digital transformation as it will benefit both the insurers and the customers.
The document examines the characteristics of insurance contracts, defining insurable risks as risks that can be pooled and calculated to determine premiums, and insurance contracts as agreements where insurers take on risks from policyholders in exchange for premiums. It also discusses the benefits of insurance in reducing uncertainty through risk pooling and diversification, as well as the costs of moral hazard and adverse selection, and how insurers use mechanisms like deductibles, limits, and coinsurance to mitigate these costs.
This module discusses risk management and insurance. It covers topics such as risks and risk management, different types of risks, methods of handling risks including avoiding, controlling, accepting and transferring risks. It also discusses the basic concepts of insurance including risk pooling, law of large numbers, requirements of insurable risks, advantages and disadvantages of insurance. Additionally, it covers personal risk management process, objectives of risk management pre-loss and post-loss, insurance market dynamics and underwriting cycle. Finally, it discusses some key legal principles of insurance contracts such as offer and acceptance, consideration, insurable interest, subrogation and utmost good faith.
When market conditions are good insurance companies get low of business and their profits increase but in the adverse market conditions the companies start facing losses or their profitability reaches to rock bottom.
This presentation serves as study notes for the e-learning material titled: "South African Hedge funds and international developments"
These notes focus on Solvency II and its Impact on the Hedge Fund Industry.
http://www.hedgefund-sa.co.za/solvency-ii
2016 Analysis on Beyond Implementation, Insurance, Business and Market Effect...Ganesh Pandagale
Description-
Synopsis
Timetrics 'Insight Report: Solvency II Beyond Implementation' analyzes the developments in the insurance industry following the implementation of Solvency II on January 1, 2016.
Most insurers in Europe region have found taht their risk management and governance strategies have improved as a result of Solvency II. Moreover, the regime prepares the ground for a single insurance market across Europe, enabling insurers and reinsurers to operate under the same set of regulations.
It will increase the competitiveness of insurers and reinsurers, and provide the same level of consumer protection throughout the European insurance industry.
To Browse a Report Detail with TOC @ http://www.researchmoz.us/insight-report-solvency-ii-beyond-implementation-report.html
The document discusses ISDA's Standard Initial Margin Model (SIMM) methodology for calculating initial margin requirements for non-centrally cleared OTC derivatives. It describes how SIMM works by decomposing portfolios into risk factors and calculating sensitivities that are scaled and aggregated. Implementing SIMM requires financial institutions to consolidate trade data, choose a system to perform calculations, manage disputes, and import dynamic risk weights and correlations from ISDA. The changes require significant adjustments to businesses processes and systems.
Solvency II and IRRD: Charting the Future of EU Insurance Regulationoffice96419
The document discusses upcoming changes to the regulatory framework for insurance in the European Union. The key points are:
1) There is a provisional agreement to revise the Solvency II directive and introduce the Insurance Recovery and Resolution Directive (IRRD). This aims to strengthen insurers' role in long-term investment and enhance financial resilience.
2) The revisions to Solvency II seek to align insurance with broader EU objectives like sustainability goals. The IRRD establishes rules for resolving insurers in financial distress in an orderly manner.
3) The European Insurance and Occupational Pensions Authority (EIOPA) will have an expanded role in developing technical standards and delegated acts to implement the new
Solvency II professional knowledge presentation training 27032013CGI Germany
The document provides training materials on Solvency II. It includes definitions of key terms related to Solvency II such as the Solvency Capital Requirement, standard formula, and internal model. It also discusses reasons for Solvency II including addressing risks across pillars and improving competitive positioning. Additional sections cover risk management fundamentals and definitions, components of risk, and the impact of the financial crisis on the need for Solvency II.
This document provides technical specifications for assessing the impact of the proposed EU long-term guarantees measures package. It outlines the scenarios to be tested, including different risk-free interest rate term structures and matching adjustment approaches. The assessment will evaluate the impact on policyholder protection, supervision, implementation costs, risk management incentives, and financial stability. Insurance companies will provide quantitative input to assess the effects of the measures on solvency positions and competition. The specifications supplement previously published details and focus on the quantitative industry data collection.
The document provides summaries of regulatory news from February 2019 across multiple jurisdictions and topics:
1) It addresses upcoming issues with implementing aspects of EMIR Refit and discusses reports from ESAs on regulatory sandboxes and innovation hubs. Updated bank risk dashboards show improved capital ratios but weak profitability.
2) New standards for market risk are announced with a simplified approach for smaller banks. EBA and ESMA reports address crypto-asset regulations and need for an EU-wide approach. Another report finds investment costs significantly reduce returns.
3) Draft delegated regulations on sustainable finance and sector views from FCA are published. Guidance is provided on exposures associated with high risk and on ESG disclosure. Reviews
The document discusses approaches to address base erosion and profit shifting (BEPS) involving interest in the banking sector. It notes that while the BEPS project established rules to address interest deductions, these may not be effective for banks due to their unique features. The document outlines some of these key features of banks, including that interest income and expenses are core to their business model. It also discusses potential BEPS risks involving interest in the banking sector and recommends that countries implement targeted rules to address identified risks while considering existing banking regulations.
Crypto-Assets: Implications for financial stability, monetary policy, and pay...eraser Juan José Calderón
Crypto-Assets: Implications for financial stability, monetary policy, and payments and market infrastructures
Occasional Paper Series. No 223 / May 2019.
Abstract
This paper summarises the outcomes of the analysis of the ECB Crypto-Assets Task
Force. First, it proposes a characterisation of crypto-assets in the absence of a
common definition and as a basis for the consistent analysis of this phenomenon.
Second, it analyses recent developments in the crypto-assets market and unfolding
links with financial markets and the economy. Finally, it assesses the potential impact
of crypto-assets on monetary policy, payments and market infrastructures, and
financial stability. The analysis shows that, in the current market, crypto-assets’ risks
or potential implications are limited and/or manageable on the basis of the existing
regulatory and oversight frameworks. However, this assessment is subject to change
and should not prevent the ECB from continuing to monitor crypto-assets, raise
awareness and develop preparedness.
Keywords: crypto-assets, characterisation, monitoring, crypto-assets risks
JEL codes: E42, G21, G23, O33
Pillar 2: operational issues of risk managementQuoc Nguyen Dao
This document from PwC provides guidance on implementing the risk management requirements of Solvency II Pillar 2. It discusses the theoretical framework, including the provisions of the Directive and implementing measures. It then addresses the operational implementation, defining the risk management system, implementing the risk management process, and managing cross-business projects. The document aims to help insurance companies adapt principles of Pillar 2 to their organizations in a compliant manner.
Dutch life market on eve of major shake-out
We expect that over the next five years, many insurers will disappear and there remain a maximum of 6 to 10 (of the 65) life insurers. That is the prediction of Atos Consulting in the update of the ‘scenario planning life insurance 2020’.
• It appears that one of the most gloomy scenario now seems to be come reality. Only insurers that adjust their business model and realize significant cost savings, are likely to survive.
The Insurance Reporting Challenge: Building an Integrated FrameworkAccenture Insurance
The reporting component of Solvency II has become a major concern for insurance companies operating in Europe. Solvency II Pillar III increases reporting requirements in terms of volume, frequency, timeliness and complexity. These, in turn, have a direct bearing on insurers’ data, processes, methodologies and organization. The pressure put on insurers to enhance their reporting calls for a revamped closing and reporting framework where integration is part of the approach. Beyond the new Solvency II requirements, reporting, in our view, remains a pressing issue at the global level.
Tech scouting in Banking & Insurance Project.pptxGiorgia Zunino
This is the final report for Mastre in Fintech and Digital Transformation at LUMSA about innovation team tech scouting for insurtech startups. The analysis process was set up in 5 different steps and worked as following:
Panoramic view of Insurance market and last years trends
Identification of needs and issue about Insurance market and what industry is working on
Selection of 4 startups which are working on technology related to insurance new waves
Description of the chosen startups and the tech features involved
Our consideration about different aspects improvements:
- The motor insurance industry is undergoing significant upheaval due to changes in regulation, economic conditions, technology, and customer behavior.
- Regulation like Solvency II has increased complexity for insurers while unintended consequences of other regulations have increased costs.
- Economic uncertainty and a slow recovery has led insurers to be risk averse and delay investments in innovation.
- Market competition is increasing as new digital entrants may disrupt the industry and consolidate auto repair shops are changing insurer-repairer relationships.
- Insurers face challenges from legacy IT systems that inhibit their ability to respond to changes and compete with new digital competitors.
European insurers would like to see the European Insurance and Occupational Pensions Authority fining regulators where Solvency II is not applied equally across the European Union.
This is one of the key findings of The Effects of Solvency II, a White Paper publish today by Post Europe, in association with Atos Origin
2021 tria small insurer study commentsJasonSchupp1
The Terrorism Risk Insurance Act requires the Federal Insurance Office (FIO) to conduct a study of the program’s impact on small insurers. We have suggested FIO focus its upcoming report on two heighten program risks facing small insurers:
• Compliance with the separate line-item disclosure of terrorism premium; and
• A disproportionate burden of post-event policyholder surcharges.
Supporting an Effective Cyber Insurance Market (OECD Report for the G7 Presid...Δρ. Γιώργος K. Κασάπης
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Pricing and modelling under the Italian Direct Compensation Card Scheme
1. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Solvency II premium risk modelling under the
direct compensation CARD system
Seminario di Statistica Assicurativa
Giorgio Spedicato, Ph.D
Universit´ Cattolica
a
Milan, Italy
August 27, 2011
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
2. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Table of contents
1 Overview
2 Recent challenges in insurance business
The DR system in Italy
Overview of the CARD scheme
Pricing MTPL policies within the CARD scheme
Solvency II
3 An internal model for MTPL UW premium risk
The general framework
Theoretical models
The empirical application
Data set description
Model output
4 Final considerations
Model discussion
Extension ad developments
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
3. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Outline
1 Overview
2 Recent challenges in insurance business
The DR system in Italy
Overview of the CARD scheme
Pricing MTPL policies within the CARD scheme
Solvency II
3 An internal model for MTPL UW premium risk
The general framework
Theoretical models
The empirical application
Data set description
Model output
4 Final considerations
Model discussion
Extension ad developments
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
4. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Introduction
This Ph.D thesis presents a possible model to assess UW premium
risk capital charge on a motor third party liability (MTPL)
portfolio handled under a direct reimbursement (DR) scheme.
MTPL is the most relevant Italian P&C Market line of business
(LOB), accounting for 57% of GWP in 2008 [?]. Multivariate
techniques are currently used to price MTPL contracts.
Italian MTPL insurance regulation has known frequent changes
since MTPL compulsory requirement in 1969. MTPL pricing has
been liberalized in 1994. More recently, in 2007 the regulation has
been strongly revised by the introduction of the direct
reimbursement scheme with the so called CARD agreement. In
addition, a deep revision of the Bonus Malus transition rules has
been put in force.
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
5. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Introduction
The forthcoming introduction of Solvency II pulls insurers to better
assess risks within portfolio with the ultimate objective to
determine the distribution of the capital at risk (CaR) arising from
the insurance operation. Underwriting CaR estimation requires not
only the expected value but also the volatility of policyholders’
portfolio to be properly assessed.
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
6. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Introduction
Literature and practical applications exist regarding both Solvency
II underwriting risk component of the CaR and regarding
multivariate classification techniques used to price MTPL tariffs.
Nevertheless the introduction of DR scheme in the Italian MTPL
business practice brought relevant complications in the process of
pure premium estimation and total loss distribution assessment.
This Ph.D thesis deepens the impact of CARD DR scheme on
pricing and capital modelling showing one possible approach to
model premium risk under a DR scheme.
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
7. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Outline
1 Overview
2 Recent challenges in insurance business
The DR system in Italy
Overview of the CARD scheme
Pricing MTPL policies within the CARD scheme
Solvency II
3 An internal model for MTPL UW premium risk
The general framework
Theoretical models
The empirical application
Data set description
Model output
4 Final considerations
Model discussion
Extension ad developments
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
8. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
The CARD system
Regulation reforms have affected relevantly MTPL underwriting
and actuarial practices since 2007. They are the second Bersani
law and the introduction of DR scheme.
Bersani laws have halted the structure of Italian experience rating
allowing policyholders with few if any driving experience to inherit
the best BM class within their household. A second provision of
Bersani laws allowed tied agents to use their allocated discount
budget more freely. Nevertheless, this Ph.D thesis will not take
into account the effect of such provisions. [?] carries a
comprehensive introduction on these topics.
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
9. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
The CARD system
DR scheme has been put in force in Italy by the so called ”CARD”
regulation. According to CARD rules, the insurer of the non responsible
part indemnifies directly its own policyholder by the full claim amounts it
has suffered for most non responsible claims. The responsible part insurer
then indemnifies the not responsible part insurer by a forfeit amount.
The reverse happens when the insured is responsible for the claim.
The received forfeit is calculated by a known rule Therefore it is usually
different from the amount effectively paid to the non - responsible part.
CARD actuarial challenges arise from:
Negative claim amounts are possible as received forfeit is generally
different from actual suffered claim cost.
The frequency and the cost of suffered claims needs to be modelled,
in addition to caused claim ones. In fact the average received forfeit
usually does not offset suffered claim severity by the same amount.
The shortness of historical experience period affects credibility of
pricing and reserving estimates.
Regulatory environment frequently changes, especially in forfeit
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
10. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
The CARD system
Since 2010 received forfeit due to damages to the non-responsible driver
depends by class of vehicle and territory. Figures 1 and 2 show forfeit
structure by territory since 2007. Forfeit due damages to other
passengers (and CID bodily iis set according to a fair complicated rule
containing deductible and coinsurance clauses. Formula 1 show CTT
forfeit rule for 2007-2009. Effective amount for CID and CTT forfeit are
reported in tables 1 and 2 respectively.
˜
X ≤ 500 → F = 0
F = ˜ ˜ ˜ (1)
X > 500 → F = 3250 + max 0; X − 5000 −max 500; min 0.1 ∗ X ; 20000
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
11. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
CID and CTT forfeit tables
AY cluster 1 cluster 2 cluster 3 split
2007 2300 2000 1800 none
2008 1670 1373 1175 BI and PD
2009 1658 1419 1162 BI and PD
2010 (4077) 2152 (3789) 1871 (3410) 1589 (two wheels) all other
2011 (4040) 2183 (3741) 1883 (3367) 1627 (two wheels) all other
Table: Synoptic CID forfeit structure by AY and territorial cluster
AY two wheels all other
2007 - 2009 3250 3250
2010 4011 3150
2011 3959 3143
Table: Synoptic CTT forfeit structure by AY and class of vehicle
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
12. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
2007-2009 forfeit by province
Giorgio Spedicato Figure: 2007-2009 forfeit territorial structure Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
13. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
2010-2011 forfeit by province
Giorgio Spedicato Figure: 2010-2011 forfeit territorial structure Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
14. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Overview of CARD components of claims
Within the CARD system up to three different ”components of claims”
may arise even together from a single loss occurrence:
1 No Card claims: severe bodily injuries or losses not caused by
collisions between two vehicles.
2 CID claims: slight bodily injuries and property damages arising from
collision between two vehicles. They can be split into CID caused
(CIDD) and CID suffered (CIDG) components of claims. CIDG
amounts are paid in full by the handling company, that receive a
compensating forfeit amount (CIDGF).
3 CTT claims: losses regarding property damage an bodily injuries
suffered by passengers. They can be also spit into CTT caused
(CTTD) and CTT suffered (CTTG) components of claims. CTTG
amounts are paid in full by the handling company, that receive a
compensating forfeit amount (CTTGF).
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
15. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Overview of CARD system
No Card components of claim can be modelled by the classical actuarial
approach, as only one type of frequency and claim cost need to be
assessed.
On the other hand, the assessment of the CARD components of claim
requires:
1 an evaluation of the frequency of both caused and suffered
component of claims.
2 an evaluation of the corresponding forfeit.
3 the handling of negative claim cost when received forfeit is greater
than suffered claim cost.
Whilst the cost of suffered component of claims is easily modelled ,
finding an analytical form for forfeit distributions is not possible, due to
the mixed discrete / continuous nature of the distribution as shown in
figure . Figure 3 and 4 show the 2009 distribution of CIDG gross amount
and compensating forfeit respectively.
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
16. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Pricing MTPL coverage under the CARD scheme
Traditional MTPL rate making requires an overall rate adequacy
analysis and a risk classification step (e.g. using GLMs). [?, ?]
provide an adequate literature about this topic. Moreover MTPL
tariffs tipically contain claim history sensitive variables (e.g. BM)
that requires ad hoc analysis. In [?] a brief discussion is presented.
The composite structure of losses and the presence of negative
claim amounts lead to a revision of classical risk classification
analysis in the CARD system.
Moreover even if it is possible to adjust classification rate-making
in order to provide a coherent estimate of burning cost, the
assessment of the risk premium distribution requires greater care.
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
17. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Pricing MTPL coverage under the CARD scheme
Generalized linear models (GLMs) are the standard method used in P&C
actuarial practice to set tariff relativities. Log-linear overdispersed
Poisson and Gamma regressions represents the most used models for
frequency and severity assessment.
It is worth to stress that the severity is modelled instead of the cost of a
single claim as the dependent variable is the severity weighted for the
number of claim occurred in the cell defined by the rate-making factors
used as independent variables.
The final relativities are obtained by fitting two separate models on the
frequency and the severity of claims respectively. Therefore an initial
estimate of burning cost per policyholder group is obtained. A final
model is estimated by a final log-linear gamma regression. In this last
model, a-priori restrictions on specific rate-making factors may be set
adding appropriate offsets in GLMs formula as described in [?, ?].
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
18. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Pricing MTPL coverage under the CARD scheme
The following steps may provide a coherent estimate of MTPL coverage
relativities under a CARD scheme.
1 Build classical frequency - severity models on handled components
of claim: NoCard, CidG and CttG.
2 Use a standard ODP model to model CidD and CttD frequencies.
3 Forfeits amounts (CidGF, CttGF, CidDF, CttDF) may be modelled
using a very simple model that uses only forfeit zone as predictors.
Gamma log-linear link or even normal identity link GLMs may be
used.
4 An initial pure premium for the i-th risk can be estimated as follows:
ppi = frNoCard ∗ sevNoCard + frCidG ∗ (sevCidG − sevCidGF ) + frCttdG ∗
(sevCttdG − sevCttdGF ) + frCidD ∗ sevCidDF + frCttD ∗ sevCttDF .
5 A final model on ppi can be finally estimate using a Gamma GLM
and appropriate offsets on specific variables a priori set.
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
19. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Failure of standard classification ratemaking in assessing
the total loss distribution
The mathematical scope of GLMs is to model the expected value of the stochastic risk
indicator (frequency, severity or burning cost) conditional to the risk characteristics.
The dispersion of the dependent variable is not an important issue when building the
risk premium models.
Another bias arises from two typical adjustment are used when the claim cost is
modelled within standard classification analysis [?]:
1 The standard loss cost distribution is modified by capping losses to a specified
threshold (e.g. 99th percentile) before being modelled though GLMs. A offset
multiplier based on the ratio of excess claim on capped claim is obtained and
applied on the capped claim cost amount. This trick is used to avoid the
distortion on estimated relativities arising from shock or catastrophe losses.
2 The cost of single loss is usually not model directly, instead of the severity for a
single policy (weighted by the number of incurred claims).
The purpose of these adjustment is to change the shape of the dependent variable
distribution to obtain estimate of tariff relativities more robust to outliers.
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
20. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Example of CIDG claim cost distribution
Figure: CigG claim cost
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
21. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Example of CIDG forfeit claim cost distribution
Figure: CigGF claim cost
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
22. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Solvency II challenges for P&C Insurer
In addition to CARD scheme introduction, Italian insurers face the
upcoming enforcement of Solvency II directives. Solvency II
directives require a risk based calculation of solvency capital. The
calculation considers the joint contribution of all risk sources
(underwriting, market, credit and operational) that the insurer
bears.
Underwriting risk represents the risk arising from the insurance
core business. It is further divided into three sub - modules:
premium, reserving and catastrophe risk.
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
23. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Solvency II challenges for P&C Insurer
Solvency II standard formulas is expected to increase the Solvency
Required Capital relevantly with respect to current regulatory
environment (see [?] for details).
Standard formula usually leads to a conservative estimation of solvency
required capital. Besides standard formula, insurers may assess their
capital requirement by an internal model approved by the regulator.
Internal models development is encouraged as they drive entities toward
better assessing the risk sources they bear.
Our work will discuss premium risk under a CARD portfolio, that evaluate
the potential shortfall between actual losses and earned premium.
Reserve risk will be not assessed in this phase, even if reserve risk analysis
in a CARD environment would present interesting challenges.
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
24. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Solvency II NL premium risk standard formula
Formula 2 represents NL premium risk standard formula according to QIS4 framework. Volume measure is defined
as Vj lob = max P t,written j,lob ; P t,earned j,lob ; 1.05P t−1,written j,lob , while volatility estimate is determined
through a credibility weighted average of entity historical time series 3 and a tabulated complement of credibility
weight. The ¡credibility weight depends by number of years used into the experience period, that is
σprem,lob = clob σU,prem/lob 2 + (1 − clob ) σM,prem/lob 2 .
NLpr = ρ (σ) V
exp z0.995 ln σ 2 + 1 (2)
ρ (σ) = −1
σ2 + 1
Plob y (LRlob y − µlob )2
y
σprem,lob = (3)
(nlob − 1) Vprem,lob
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
25. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Current Solvency II premium risk literature
Underwriting risk internal models usually build a framework for the
total cost of claim distribution of each LOB within the company.
LOB results are therefore aggregated allowing to obtain and
underwriting risk capital charge.
[?] exemplifies the use of collective risk theory in modelling UW
risk capital charge for a multi - line insurer.
The collective risk theory approach is standard in capital modelling.
Nevertheless within LOB risk heterogeneity is rarely if never taken
into account. In fact the frequency and cost of claim distributions
are assumed with the same parameter on all risks within a LOB.
On the other hand MTPL portfolios present a risk heterogeneity so
relevant that standard distributions cannot model properly.
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
26. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Outline
1 Overview
2 Recent challenges in insurance business
The DR system in Italy
Overview of the CARD scheme
Pricing MTPL policies within the CARD scheme
Solvency II
3 An internal model for MTPL UW premium risk
The general framework
Theoretical models
The empirical application
Data set description
Model output
4 Final considerations
Model discussion
Extension ad developments
Giorgio Spedicato Unicatt
Solvency II premium risk modelling under the direct compensation CARD system
27. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
The modeling idea
The modelling framework we have implemented takes into account
key characteristics of DR MTPL portfolios: the risk heterogeneity
and the structural presence of negative claim cost.
Four internal models will be presented. These models lies within
the presented framework and differs whether:
Component of claims are separately modelled or the total net
loss payment is taken into account.
Large claims are considered separately from attritional claims.
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Solvency II premium risk modelling under the direct compensation CARD system
28. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Accounting for risk heterogeneity
Risk heterogeneity is handled dividing the portfolio under
assessment into more homogeneous clusters of policyholders.
GAMLSS predictive models have been estimated, yielding to
models of expected value and volatility of the frequency and cost
of claims that return different values according to the insured’s
cluster.
We have chosen to define clusters according to rate-making factors
levels instead of use standard clustering algorithm to keep
consistency with standard pricing practice.
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Solvency II premium risk modelling under the direct compensation CARD system
29. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Negative claim amounts handling
Loss amounts modelling requires a particular care when being
modelled as structurally negative claim amounts might arise. No
analytical distribution of the claim payment exists under the CARD
system, even if insured are clustered as much finest as possible.
Re-sampling from an empirical sample has been found as the only
suitable mathematical solution to approximate the distribution of
compensating CidG and CttG forfeits and caused CidD and CttD
amounts. The sampling data set was stratified by class of vehicle,
CARD territorial zone and type of component of claims.
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Solvency II premium risk modelling under the direct compensation CARD system
30. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Negative claim amounts handling
Analytical solutions to CARD cost of claims net payments would have
been found both within a particular parametrization of the Tweedie
distribution or in the skew normal family. Implementation issues have led
not to follow these ways as:
[?] quotes that when the p parameter lies p < 0, the domain lies on
the whole real line (but, interestingly, µ > 0). Estimating a marginal
distribution for CARD losses would be the first application known
for such distribution. Nevertheless no software estimates Tweedie
distribution when p < 0.
Skew normal distribution [?] would approximated CARD losses as
parameters may be found to be positively skew and having domain
in the negative part of the real line also. Nevertheless skew normal
regression in the GAMLSS [?] packages is experimental and failed
convergence when tested.
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31. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Attritional vs large claims
Split the analysis between attritional and large claims is a common choice
in P&C actuarial practice, especially in capital modeling. Large losses
distort estimated relativities when used in the standard predictive models,
as detailed in [?]. Moreover a more precise assessment of the tail of the
loss distribution is coherent with the final purpose of VaR type capital
allocation implemented in Solvency II.
GPD distribution has been used to model large claims distribution. Large
claim modeling is a not easy task as it requires: a choice of the threshold
and the parameters estimation. Parameter risk is an issue in GPD
modeling. Relevant literature is [?]. The algorithm chosen to estimate
GPD parameters was the minimum Anderson - Darling statistic (in order
to maximize the fit on the tail) provided in the POT package [?].
The sensitivity of premium risk capital charge implied by the use of
separate modelling for attritional and large claims has been assessed
reporting distinct capital charge estimates.
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Solvency II premium risk modelling under the direct compensation CARD system
32. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Model total payments vs components of claim
Another modelling choice consisted whether modelling component of
claims separately of modelling the total net payments.
Separate modelling of the component of claims requires the assumption
of independence between the components of claims within any cluster of
policyholders. This assumption may be very strong, even if a part of the
dependency have been already considered by dividing the portfolio into
homogeneous clusters. Modelling component of claim residual
dependency within cluster is howerer a very difficult task. The strongest
advantage of such approach lies in a insight of the effect of policy rate
making variable on the specific component of claims.
Modelling the net payment requires use of re-sampling for the claim cost
distribution as no available regression modelling exists. On the other
hand the is no more need to consider the dependency between
component of claims.
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33. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
The GAMLSS regression models
GAMLSS have been introduced and discussed in [?]. Few actuarial
applications of GAMLSS model exist in actuarial literature: [?] and
[?]. Nevertheless, no applications with focus on ERM exist until
now. The rationale under GAMLSS is to extend GLMs by
estimating regression equations to predict up to four parameter of
a distribution, that are mean, location, shape and scale.
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34. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
The GAMLSS regression models
GAMLSS models allow to extend GLMs methodology to a wide set
of no - exponential family distribution (e.g. log-normal, logistic,
Weibull, etc...). The GAMLSS framework allows also be non
parametric elements (e.g. splines) to be included in the regression
equations. Moveover also mixed models can be estimated within
GAMLSS family.
Step-wise approach can be implemented to select parsimonious
dependency relationships using minimum AIC criterion can be used
to compare competing models. Model assumptions can be assessed
by analysis of normalized quantile residual, as described in [?].
Figure 5 and 6 show µ regressions equation parameters estimated
for the NoCard frequency and the CidG severity of four wheels
vehicles.
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35. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
The GAMLSS regression models
Figure: NoCard Frequency model for Cars
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36. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
The GAMLSS regression models
Figure: CIDG severity model for Cars
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37. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
EVT employment to assess shock losses effect
EVT was used to model large losses over a defined threshold. It
has been applied both when separated component of claims were
modelled and when the net payments were modelled.
2008 and 2009 losses were pooled together after having put on
2009 level 2008 losses by a proper inflation correction factor. As
ratio of percentiles in usually a more consistent estimator of
inflation than mean and as inflation rate usually differs by size of
loss the ratio of percentiles of 2008 and 2009 component of claims
losses has been analysed, as in figure 7.
Extreme losses distributions by component of claims have been
fitted assuming a GPD. Goodness of fit analysis of estimated
models lead to acceptable results, as exemplified in figure 8 for
NoCard losses.
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38. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Inflation rate by percentiles component of claims
Figure: Inflation rate by percentiles
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Solvency II premium risk modelling under the direct compensation CARD system
39. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
GPD assessment for NoCard losses
Figure: NoCard GPD fit
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Solvency II premium risk modelling under the direct compensation CARD system
40. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
The purpose of the model
The purpose is to assess the premium risk capital charge on a real
MTPL portfolio handled with MTPL. UW premium risk capital
˜
charge has been defined according to formula 4, where S represent
the total loss amount of the underlying portfolio.
˜ ˜
NLprRisk = S99.5% − E S (4)
A real MTPL portfolio was provided by a major insurer. Provided
data bases contain data from exposures, rate-making variables and
claims transactions for last three calendar / accident years (2007 -
2009).
Moreover MTPL LOB written premium, earned premium and
losses last seven years time series were provided in order to
estimated standard formula premium risk capital charge.
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Solvency II premium risk modelling under the direct compensation CARD system
41. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Exposures classification variables
In addition to exposures and losses aggregate by Calendar Year /
Accident Year, following classification variables were selected by
vehicle category:
four wheels: age crossed by sex, horsepower, feed, territory
class, calendar year.
two wheels: age, engine volume, territory, calendar year.
trucks: weight crossed by use, age, territory, calendar year.
These variables affects significantly MTPL peril [?] and all have
found significant in at least one regression. Calendar year has been
inserted into all models even if found insignificant in order to
absorb any specific CY effect (claim cost inflation, legal
environment changes, . . . ).
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Solvency II premium risk modelling under the direct compensation CARD system
42. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Structure of data and assumption
Following hypotheses have been assumed when calculating the
2010 underwriting premium risk capital charge:
1 No handled cost inflation.
2 No change in the CARD forfeit structure with respect to
2009. This assuptions did not hold in reality.
3 No change in the portfolio business mix with respect to 2009.
4 A cumulative development factor (CDF) of 1.2 have been
assumed for ultimate cost applied to claim cost to account for
IBNR and IBNER.
5 A supplementary charge of +3.5% has been added to account
for unallocated loss adjustment expenses (ULAE), as claim
cost data accounts for loss and ALAE only.
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Solvency II premium risk modelling under the direct compensation CARD system
43. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
The premium risk internal models variations
Two different approaches were tested in order to assess the claim cost:
1 split claims between attritional claims and large claims. Attritional
claims were modelled by standard predictive modelling, whilst large
losses modelling was based GPD distribution.
2 the cost of single loss was modelled directly.
Compensating and caused forfeit distribution are difficult to be modelled
by a standard distribution. Therefore re-sampling on the empirical 2009
forfeit distribution was used.
The sample forfeit data set has been stratified by class of vehicle and
forfeit cluster. The frequencies of forfeit were modelled directly by the
corresponding frequency models for caused and suffered component of
claims.
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Solvency II premium risk modelling under the direct compensation CARD system
44. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
GAMLSS models fit issues
When GAMLSS predictive models have been estimated on each
component of claim, good fit has been obtained on frequency
model, e.g. see 9. On the other hand bad fit has been found on
the models for the cost of claims, e.g. see 10. A not good fit on
the cost of claim was expected due to the low maturity of claims
(maximum maturity 12 month) and tabulated value of case
reserves.
With respect to frequency and cost of claim modelling of each
component of claims we have assumed negative binomial and
gamma distributions and only one variable was used to model
dispersion parameter following [?] and to not develop unreasonably
complicated models.
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Solvency II premium risk modelling under the direct compensation CARD system
45. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
GAMLSS models fit issues
Figure: NoCard four wheels frequency GAMLSS residuals analysis
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Solvency II premium risk modelling under the direct compensation CARD system
46. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
GAMLSS models fit issues
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Solvency II premium risk modelling under the direct compensation CARD system
47. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Internal model results overview
Table 3 and figure 11 show total loss distributions and capital
charges by applied model. Following conclusion may be drawn:
Internal models premium risk capital charges are comparable
with undertaking specific standard model.
When components of claim have been separately modelled,
resulting capital charges are generally lower than capital
charges resulting when the net payment were used. Higher
capital charge may be due to a significant positive residual
dependency between component of claims not considered in
the model.
When GPD has been used to model large losses, resulting
capital charges are lower. Thin tailed nature of MTPL losses
may be drawn.
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Solvency II premium risk modelling under the direct compensation CARD system
48. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Capital charges by model
model on EP on EL CV
SF market wide 27.8% n.a. n.a.
SF undert. spec 18.6% n.a. n.a.
component of claims, GPD 16.0% 21.2% 7.9%
component of claims, no GPD 20.8% 26.8% 9.7%
net payments, GPD 20.5% 24.9% 8.9%
net payments, no GPD 23.6% 30.5% 9.7%
Table: Premium risk capital charges ( on earned premiums and expected
losses) and CV
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Solvency II premium risk modelling under the direct compensation CARD system
49. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Internal models capital charge distributions
Figure: Total loss distribution by internal model
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Solvency II premium risk modelling under the direct compensation CARD system
50. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Outline
1 Overview
2 Recent challenges in insurance business
The DR system in Italy
Overview of the CARD scheme
Pricing MTPL policies within the CARD scheme
Solvency II
3 An internal model for MTPL UW premium risk
The general framework
Theoretical models
The empirical application
Data set description
Model output
4 Final considerations
Model discussion
Extension ad developments
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Solvency II premium risk modelling under the direct compensation CARD system
51. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Drawbacks
Relevant assumptions of the model are:
Deterministic CDFs for losses evaluated at 12th month of development.
Therefore the claim emergence and settlement process contribution to the
underwriting risk volatility have been not takend into account. Also lack of
stable historical data does not allow credible IBNR analysis eventually split by
component of claims.
Reserve are considered at un-discounted basis.
It is difficult to update model on time to account for forfeit rules revision as
forfeit changes are decided close to year end.
The claim cost distributions by component of claims are difficult to be
approximated by a suitable loss distribution even clustering the portfolio to
account for risk heterogeneity. Nevertheless this issue is common in personal
line empirical data.
The probability distributions for risk components have been chosen negative
binomial for frequency and gamma for severity and a log-linear link have been
assumed. The link function and the regression function might be build more
precisely.
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Solvency II premium risk modelling under the direct compensation CARD system
52. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Advantages
Most relevant advantages of the model are:
it provides a premium risk capital charge coherent with the
CARD system.
it allows to model heterogeneous portfolios.
it allows to model non - static portfolio even with change of
portfolio mix.
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Solvency II premium risk modelling under the direct compensation CARD system
53. Overview Recent challenges in insurance business An internal model for MTPL UW premium risk Final considerations
Extension and developments
Valuable applications of the presented framework are:
Capital allocation across sub - lines (Cars, Truck and four
wheels). See [?] for an overview.
Risk based pricing allowing to determine a profit loading
depending by profile variability.
Suggested research directions with respect to the discussed issues
are:
Claim reserve analysis under the CARD system.
Pricing methodology deepening.
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Solvency II premium risk modelling under the direct compensation CARD system
54. Bibliography Thanks
Outline
5 Bibliography
6 Thanks
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Solvency II premium risk modelling under the direct compensation CARD system
55. Bibliography Thanks
Bibliography
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Solvency II premium risk modelling under the direct compensation CARD system
56. Bibliography Thanks
Outline
5 Bibliography
6 Thanks
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Solvency II premium risk modelling under the direct compensation CARD system
57. Bibliography Thanks
Acknowledgments
I whis to thank my PhD supervisor, Prof. Nino Savelli for the
patience and suggestions that have lead to these results. Moreover,
I’m grateful with my actuarial supervisors, Gloria Leonardi and
Garnier Stella.
Finally I wish to thank my employer, AXA Assicurazioni, for having
provided me a sample dataset on which calibrate the model.
Nevetheless any considerations appearing in this paper are
responsibility of myself alone. In publishing these contents AXA
Assicurazioni takes no position on the opinion expressed by myself
and disclaims all responsibility for any opinion, incorrect
information or legal error found therein.
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Solvency II premium risk modelling under the direct compensation CARD system