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Risks 2018, 6(3), 75;

One-Year Change Methodologies for Fixed-Sum Insurance Contracts

Prime Re Solutions, 6340 Zug, Switzerland
Department of Mathematics, UAM, Campus de Cantoblanco, 28049 Madrid, Spain
SCOR, General Guisan-Quai 26, 8022 Zurich, Switzerland
LPSM, Université Paris Diderot, 75013 Paris, France
Author to whom correspondence should be addressed.
Received: 27 June 2018 / Revised: 24 July 2018 / Accepted: 26 July 2018 / Published: 30 July 2018
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We study the dynamics of the one-year change in P&C insurance reserves estimation by analyzing the process that leads to the ultimate risk in the case of “fixed-sum” insurance contracts. The random variable ultimately is supposed to follow a binomial distribution. We compute explicitly various quantities of interest, in particular the Solvency Capital Requirement for one year change and the Risk Margin, using the characteristics of the underlying model. We then compare them with the same figures calculated with existing risk estimation methods. In particular, our study shows that standard methods (Merz–Wüthrich) can lead to materially incorrect results if the assumptions are not fulfilled. This is due to a multiplicative error assumption behind the standard methods, whereas our example has an additive error propagation as often happens in practice. View Full-Text
Keywords: one-year risk; Merz–Wüthrich; solvency II; solvency capital requirement; risk margin; fixed-sum insurance one-year risk; Merz–Wüthrich; solvency II; solvency capital requirement; risk margin; fixed-sum insurance

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Dacorogna, M.; Ferriero, A.; Krief, D. One-Year Change Methodologies for Fixed-Sum Insurance Contracts. Risks 2018, 6, 75.

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