Next Article in Journal
Estimating the Potential Risks of Sea Level Rise for Public and Private Property Ownership, Occupation and Management
Next Article in Special Issue
The Cascade Bayesian Approach: Prior Transformation for a Controlled Integration of Internal Data, External Data and Scenarios
Previous Article in Journal / Special Issue
On Central Branch/Reinsurance Risk Networks: Exact Results and Heuristics
Article Menu
Issue 2 (June) cover image

Export Article

Open AccessArticle
Risks 2018, 6(2), 36; https://doi.org/10.3390/risks6020036

Operational Choices for Risk Aggregation in Insurance: PSDization and SCR Sensitivity

1
Universite de Lyon, Université Claude Bernard Lyon 1, Institut de Science Financiere et d’Assurances, Laboratoire de Sciences Actuarielle et Financiere, F-69007 Lyon, France
2
Banque de France, 61 rue Taitbout, 75009 Paris, France
3
BNP Paribas Cardif, RISK, 10 rue du Port, 92000 Nanterre, France
The views expressed herein reflect solely those of their authors.
*
Author to whom correspondence should be addressed.
Received: 22 February 2018 / Revised: 30 March 2018 / Accepted: 6 April 2018 / Published: 13 April 2018
(This article belongs to the Special Issue Capital Requirement Evaluation under Solvency II framework)
Full-Text   |   PDF [901 KB, uploaded 3 May 2018]   |  

Abstract

This work addresses crucial questions about the robustness of the PSDization process for applications in insurance. PSDization refers to the process that forces a matrix to become positive semidefinite. For companies using copulas to aggregate risks in their internal model, PSDization occurs when working with correlation matrices to compute the Solvency Capital Requirement (SCR). We examine how classical operational choices concerning the modelling of risk dependence impacts the SCR during PSDization. These operations refer to the permutations of risks (or business lines) in the correlation matrix, the addition of a new risk, and the introduction of confidence weights given to the correlation coefficients. The use of genetic algorithms shows that theoretically neutral transformations of the correlation matrix can surprisingly lead to significant sensitivities of the SCR (up to 6%). This highlights the need for a very strong internal control around the PSDization step. View Full-Text
Keywords: solvency II; risk aggregation; positive semi-definite; Rebonato–Jäckel solvency II; risk aggregation; positive semi-definite; Rebonato–Jäckel
Figures

Figure 1

This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).
SciFeed

Share & Cite This Article

MDPI and ACS Style

Milhaud, X.; Poncelet, V.; Saillard, C. Operational Choices for Risk Aggregation in Insurance: PSDization and SCR Sensitivity. Risks 2018, 6, 36.

Show more citation formats Show less citations formats

Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.

Related Articles

Article Metrics

Article Access Statistics

1

Comments

[Return to top]
Risks EISSN 2227-9091 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
Back to Top