B0787
Title: Risk aggregation and the effect of reinsurance
Authors: Alexandra Dias - University of York (United Kingdom) [presenting]
Abstract: Insurance companies must fulfil solvency capital requirements in order to ensure that they can meet their future obligations to policyholders. The solvency capital requirement is a risk management tool essential when extreme catastrophic events happen resulting in large possibly interdependent claims. The purpose is to study empirically the problem of aggregating the risks coming from several insurance lines of business and analyses the effect of reinsurance in the level of aggregate risk. Our starting point is to use a hierarchical risk aggregation model, which was initially based on 2-dimensional elliptical copulas. We use copulas from the Archimedean family. The results show that a mixture of copulas can provide a better fit to the data than the plain (single) copulas and consequently avoid overestimation or underestimation of the capital requirement of an insurance company. We also investigate the significance of reinsurance in reducing the insurance company's business risk and its effect on diversification. Our empirical study reveals that reinsurance might have an effect on diversification for insurance companies with multiple business lines.
