Capital Requirements modeling for market and non-life Premium Risk in a Dynamic Insurance Portfolio
Solvency II requires for some years that EU insurance companies calculate minimum capital requirements to face the risk of insolvency, either in accordance with the Standard Formula or using a full or partial Internal Model. An Internal Model must be based on a market consistent valuation of assets and liabilities at a one-year time span, where a real-world probabilistic structure is used for the first year of projection. In this paper, we describe the major risks of a non-life insurance company, i.e. the non-life underwriting risk and market risk, focusing on the non-life premium risk, equity risk and interest rate risk. This analysis is made using some wellknown stochastic models in both the financial-actuarial literature and practical insurance business, i.e. the collective risk model for the non-life premium risk, the geometric Brownian motion for the equity risk and the G2++ model for the interest rate risk, where parameters are calibrated on current and real market data.