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Solvency Capital Requirement (SCR) for Market Risks: A quantitative assessment of the Standard formula and its adequacy for a Swedish insurance company
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.), Mathematical Statistics.
2016 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesisAlternative title
Kapitalbaskrav för marknadsrisker under Solvens II : En kvantitativ utvärdering av Standardformeln och dess lämplighet för ett svenskt försäkringsbolag (Swedish)
Abstract [en]

The purpose of this project is to validate the adequacy of the Standard formula, used to calculate the Solvency Capital Requirement (SCR), with respect to a Swedish insurance company. The sub-modules evaluated are Equity risk (type 1) and Interest rate risk. The validation uses a quantitative assessment and the concept of Value at Risk (VaR). Additionally, investment strategies for risk free assets are evaluated through a scenario based analysis.

The findings support that the Equity shock of 39%, as proposed in the Standard formula, is appropriate for a diversified portfolio of global equities. Furthermore, to some extent; the Equity shock is also sufficient for a diversified global portfolio with an overweight of Swedish equities. Additionally, the findings shows that the Standard formula for Interest rate risks occasionally underestimates the true Interest rate risk. Furthermore, it’s shown that there are some advantage of selecting an investment strategy that stabilizes the Own fund of an insurance company rather than a strategy that minimizes the SCR.

Abstract [sv]

Syftet med detta arbete är att utvärdera Standardformeln, som används för att beräkna solvenskapitalkravet (SCR) under Solvens II, med avseende på dess lämplighet för ett svensk försäkringsbolag. Modulerna som utvärderas är aktierisk (typ 1) och ränterisk. Utvärderingen genomförs med kvantitativa metoder och utifrån konceptet Value at Risk (VaR). Dessutom utvärderas investeringsstrategier för riskfria tillgångar genom en scenariobaserad analys.

Resultaten stödjer att den av Standardformeln föreskrivna aktiechocken på -39 % är tillräcklig för en diversifierad global aktieportfölj. Dessutom är aktiechocken även tillräcklig för en diversifierad global portfölj med en viss övervikt mot svenska aktier. Vidare visar resultaten att Standardformeln under vissa omständigheter underskattar ränterisken. Slutligen visar den scenariobaserade analysen att det är fördelaktigt att välja en investeringsstrategi som stabiliserar Own fund, hellre än en strategi som minimerar SCR.

Place, publisher, year, edition, pages
2016.
Series
TRITA-MAT-K, 2016:29
Keyword [en]
Solvency II, Standard formula, Solvency Capital Requirement, Value at Risk, Principal Component Analysis, Cornish Fisher expansion
Keyword [sv]
Solvens II, Standardformeln, Kapitalbaskrav, Value at Risk, Principalkomponents analys, Cornish Fisher expansion
National Category
Mathematics
Identifiers
URN: urn:nbn:se:kth:diva-189022OAI: oai:DiVA.org:kth-189022DiVA: diva2:942698
External cooperation
SPP Pension & Försäkring AB
Subject / course
Applied Mathematical Analysis
Educational program
Master of Science in Engineering - Industrial Engineering and Management
Supervisors
Examiners
Available from: 2016-06-26 Created: 2016-06-26 Last updated: 2016-06-26Bibliographically approved

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