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Risks 2018, 6(2), 50; https://doi.org/10.3390/risks6020050

The Effect of Non-Proportional Reinsurance: A Revision of Solvency II Standard Formula

Department of Mathematics, Finance and Econometrics, Università Cattolica del Sacro Cuore, Largo Gemelli 1, 20123 Milano, Italy
Received: 26 March 2018 / Revised: 22 April 2018 / Accepted: 25 April 2018 / Published: 2 May 2018
(This article belongs to the Special Issue Capital Requirement Evaluation under Solvency II framework)
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Abstract

Solvency II Standard Formula provides a methodology to recognise the risk-mitigating impact of excess of loss reinsurance treaties in premium risk modelling. We analyse the proposals of both Quantitative Impact Study 5 and Commission Delegated Regulation highlighting some inconsistencies. This paper tries to bridge main pitfalls of both versions. To this aim, we propose a revision of non-proportional adjustment factor in order to measure the effect of excess of loss treaties on premium risk volatility. In this way, capital requirement can be easily assessed. As numerical results show, this proposal appears to be a feasible and much more consistent approach to describe the effect of non-proportional reinsurance on premium risk. View Full-Text
Keywords: Solvency II; premium risk capital requirement; non-proportional reinsurance; collective risk models Solvency II; premium risk capital requirement; non-proportional reinsurance; collective risk models
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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).
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Clemente, G.P. The Effect of Non-Proportional Reinsurance: A Revision of Solvency II Standard Formula. Risks 2018, 6, 50.

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